UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2000 Commission File Numbers 0-9115 and 0-24494 MATTHEWS INTERNATIONAL CORPORATION (Exact name of registrant as specified in its charter) COMMONWEALTH OF PENNSYLVANIA 25-0644320 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) TWO NORTHSHORE CENTER, PITTSBURGH, PA 15212-5851 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (412) 442-8200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Name of each exchange Title of each class on which registered ------------------- --------------------- Class A Common Stock, $1.00 par value NASDAQ National Market System Class B Common Stock, $1.00 par value None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405a of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by nonaffiliates of the registrant as of November 30, 2000 was $431,000,000. As of November 30, 2000, shares of common stock outstanding were: Class A Common Stock 13,454,589 shares Class B Common Stock 1,970,492 shares Documents incorporated by reference: None The index to exhibits is on pages 67-69. PART I CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION: Any forward-looking statements contained in this Annual Report on Form 10-K (specifically those contained in Item 1, "Business" and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations") are included in this report pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to be materially different from management's expectations. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause the Company's results to differ materially from the results discussed in such forward-looking statements principally include changes in domestic or international economic conditions, changes in product demand or pricing as a result of consolidation in the industries in which the Company operates, changes in product demand or pricing as a result of competitive pressures, and technological factors beyond the Company's control. ITEM 1. BUSINESS. Matthews International Corporation ("Matthews"), founded in 1850 and incorporated in Pennsylvania in 1902, is a designer, manufacturer and marketer principally of custom-made products which are used to identify people, places, products and events. The Company's products and operations are comprised of three business segments: Bronze, Graphics Imaging and Marking Products. The Bronze segment is a leading manufacturer of cast bronze memorials and other memorialization products, crematories and cremation-related products and a leading builder of mausoleums in the United States. The Graphics Imaging segment manufactures and provides printing plates, pre-press services and imaging systems for the corrugated and flexible packaging industries. The Marking Products segment designs, manufactures and distributes a wide range of marking equipment and consumables for identifying various consumer and industrial products, components and packaging containers. The Company and its majority-owned subsidiaries have approximately 1,800 employees. The Company's principal executive offices are located at Two NorthShore Center, Pittsburgh, Pennsylvania 15212 and its telephone number is (412) 442-8200. The following table sets forth sales and operating profit for the Company's business segments for the past three fiscal years. Detailed financial information relating to business segments and to domestic and international operations is presented in Note 14 (Segment Information) to the Consolidated Financial Statements included in Part II of this Annual Report on Form 10-K. ITEM 1. BUSINESS, continued. Fiscal Year Ended September 30, -------------------------------------------------------- 2000 1999 1998 --------------- ---------------- --------------- Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- (Dollars in Thousands) Sales to unaffiliated customers: Bronze $140,360 53.5% $123,760 51.7% $106,273 50.2% Graphics Imaging 90,164 34.4 85,095 35.6 75,294 35.6 Marking Products 31,841 12.1 30,474 12.7 30,055 14.2 ------- ----- ------- ----- ------- ----- Total $262,365 100.0% $239,329 100.0% $211,622 100.0% ======= ===== ======= ===== ======= ===== Operating profit: Bronze 33,416 69.9 31,777 77.6 26,016 72.4 Graphics Imaging 9,640 20.2 5,135 12.5 6,910 19.2 Marking Products 4,720 9.9 4,036 9.9 3,003 8.4 ------- ----- ------- ----- ------- ----- Total $ 47,776 100.0% $ 40,948 100.0% $ 35,929 100.0% ======= ===== ======= ===== ======= ===== In fiscal 2000, approximately 81% of the Company's sales were made from the United States, and 14%, 3% and 2% were made from Europe, Canada and Australia, respectively. Bronze segment products are sold throughout the world with the segment's principal operations located in the United States, Italy, Canada and Australia. Products and services of the Graphics Imaging segment are sold primarily in the United States, Germany and Austria. The Marking Products segment sells equipment and consumables directly to industrial consumers in the United States and internationally through the Company's wholly-owned subsidiaries in Canada and Sweden and through other foreign distributors. Matthews owns a minority interest in distributors in Asia, Australia, France, Germany, the Netherlands and the United Kingdom. PRODUCTS AND MARKETS: Bronze: The Bronze segment manufactures and markets in the United States, Europe, Canada and Australia products used primarily in the cemetery and funeral home industries. The segment's principal products include cast bronze memorials and other memorialization products used primarily in cemeteries. Other cemetery and funeral home products of the Bronze segment include mausoleums, crematories and cremation-related products. In addition, the segment manufactures and markets cast bronze and aluminum architectural products used to identify or commemorate people, places and events. ITEM 1. BUSINESS, continued. PRODUCTS AND MARKETS, continued: Bronze, continued: Memorial products, which comprise the majority of the Bronze segment's sales, include flush bronze memorials, flower vases, crypt letters, cremation urns, niche units and cemetery features, along with other related products. Flush bronze memorials are bronze plaques which contain personal information about a deceased individual such as name, birth date and death date. These memorials are used in cemeteries as an alternative to upright granite monuments. The memorials are even or "flush" with the ground and therefore are preferred by many cemeteries for easier mowing and other maintenance. In order to provide products for the granite memorial and mausoleum markets, the Company's other memorial products include community and family mausoleums, granite monuments and bronze plaques, letters, emblems, vases, lights and photoceramics that can be affixed to granite monuments, mausoleums and crypts. Principal customers for memorial products are cemeteries and memorial parks, which in turn sell the Company's products to the consumer. The Bronze segment manufactures a full line of memorial products for cremation, including urns in a variety of sizes, styles and shapes. The segment also manufactures bronze and granite niche units, which are comprised of numerous compartments used to display cremation urns in mausoleums and churches. In addition, the Company also markets "turnkey" cremation gardens, which include the design and all related products for a cremation garden. In June 1999, Matthews acquired Caggiati S.p.A., the leading supplier of bronze memorialization products in Europe. Caggiati S.p.A. is based in Colorno (Parma), Italy and has two subsidiaries: Caggiati Espana S.A. in Valencia, Spain and Caggiati France S.a.r.l. in Lyon, France. The combination of Matthews and Caggiati S.p.A. is an important part of Matthews' strategy to enhance its position as the worldwide leader in the memorialization industry. This acquisition is designed to serve as a platform for Matthews to penetrate existing European markets, enter new markets in other areas of the world, and improve Matthews' ability to serve existing multi-national customers on a global basis. In addition, Caggiati products are manufactured via die cast, shell molding and lost wax technologies whereas the majority of Matthews' products are produced by sand cast technology. The combination of these manufacturing processes is expected to provide Matthews with opportunities for the introduction of new products to both existing and new markets. Caggiati S.p.A. is considered to be the premier supplier in the markets they serve and has a reputation for high quality products and outstanding customer service. The Company, through its wholly-owned subsidiary Industrial Equipment and Engineering Company ("IEEC"), is the leading North American designer and manufacturer of cremation equipment and cremation-related products. IEEC equipment and products are sold primarily to cemeteries and mortuary facilities within North America, Europe and Asia. In addition, Matthews is a leading builder of mausoleums in the United States through the Bronze segment's Gibraltar Mausoleum Construction Company operation ("Gibraltar"). Mausoleums are sold primarily to cemeteries within North America. ITEM 1. BUSINESS, continued. PRODUCTS AND MARKETS, continued: Bronze, continued: Architectural products include cast bronze and aluminum plaques, etchings and letters that are used to recognize, commemorate and identify people, places, events and accomplishments. The Company's plaques are frequently used to identify the name of a building or the names of companies or individuals located within a building. Such products are also used to commemorate events or accomplishments, such as military service or financial donations. The principal markets for the segment's architectural products are corporations, fraternal organizations, contractors, churches, hospitals, schools and government agencies. These products are sold to and distributed through a network of independent dealers including sign suppliers, recognition companies and trophy dealers. On October 21, 2000, Matthews acquired certain assets and liabilities of The SLN Group, Inc. ("SLN"). SLN, located in Nanuet, New York, is a manufacturer and marketer of photo-etched metal plaques and water-jet cut letters and logos. The acquisition of SLN is intended to broaden Matthews' offerings for identification and recognition products. Raw materials used by the Bronze segment consist principally of bronze and aluminum ingot, sheet metal, coating materials, polymer sheet, electrical components and construction materials and are generally available in adequate supply. Ingot is obtained from various North American, European and Australian smelters. Graphics Imaging: The Graphics Imaging segment provides printing plates, pre-press services and imaging systems to the corrugated and flexible packaging industries. The corrugated packaging industry consists of manufacturers of printed corrugated boxes and the flexible packaging industry consists of manufacturers of printed bags and other packaging products made of paper, film and foil. The principal products and services of this segment include printing plates, pre-press graphics and print process and print production management. These products and services are used by packaging manufacturers to print graphics that help sell the packaged product and provide information such as product identification, logos, bar codes and other packaging detail. The corrugated packaging manufacturer produces printed boxes from corrugated sheet. Using the Company's products, this sheet is printed and die cut to make a finished box. The flexible packaging manufacturer produces printed packaging from paper, film and foil, such as for food wrappers. The Company works closely with manufacturers to provide the proper printing plates and tooling used to print the packaging to the user's specifications. The segment's printing plate products are made principally from photopolymer resin and sheet materials. Upon customer request, plates can be pre-mounted press-ready in a variety of configurations that maximize print quality and minimize press set-up time. ITEM 1. BUSINESS, continued. PRODUCTS AND MARKETS, continued: Graphics Imaging, continued: The segment also provides pre-press graphics and creative art design services to packaging manufacturers and to end users of such packaging. Other products and services include print process and print production management; pre-press preparation, such as computer-generated camera-ready art, negatives, films and master patterns; plate mounting accessories and various press aids; and rotary and flat cutting dies used to cut out intricately designed containers and point-of-purchase displays. The Graphics Imaging segment customer base consists primarily of packaging industry converters and "national accounts." National accounts are generally large, well-known consumer products companies with a national presence that purchase their printing plates directly. These companies then provide their printing plates to the packaging industry converter of their choice. As part of the Graphics Imaging segment, Matthews owns a fifty percent interest in O.N.E. Color Communications, L.L.C. ("O.N.E.") and S+T GmbH & Co. KG ("S+T"). O.N.E., headquartered in Oakland, California, provides digital graphic services to advertising agencies and packaging markets. The operations of S+T, located in Julich, Germany, consist principally of flexographic printing preparation and the manufacture of photopolymer printing plates primarily for the German packaging industry. In addition, Matthews purchased a 75% interest in Repro Busek Druckvorstufentechnik GmbH & Co. KG ("Busek") on August 1, 2000. Busek is headquartered in Vienna, Austria. Products and services of Busek include pre-press packaging, digital and analog flexographic printing plates, design, art work, lithography and color separation. Busek serves customers in Austria, Hungary, Poland and the Czech Republic. The combination of the Company's Graphics Imaging business, O.N.E., S+T and Busek is an important part of Matthews' strategy to become a worldwide leader in the graphics industry and service multinational customers on a global basis. On November 21, 2000, Matthews acquired Press Ready Plate, Inc. ("Press Ready"). Press Ready, located in Kansas City, Missouri, provides pre-press services and printing plates to the flexible packaging industry. The acquisition of Press Ready is designed to increase Matthews' presence in the market for pre-press services used by the flexible packaging industry. On December 7, 2000, Matthews signed an agreement for the sale of its fifty percent interest in Tukaiz Communications, L.L.C. The sale is expected to close before January 31, 2001. Tukaiz Communications, L.L.C., based in Franklin Park, Illinois, is a pre-press and pre-media firm which principally prepares art or digital files for printing or reproduction. Major raw materials for this segment's products include photopolymers, film, rubber and graphic art supplies. All such materials are presently available in adequate supply from various industry sources. ITEM 1. BUSINESS, continued. Marking Products: The Marking Products segment designs, manufactures and distributes a wide range of marking equipment and consumables used by customers to identify various consumer and industrial products, components and packaging containers. Marking products range from simple handstamps made from special alloy steel to sophisticated microprocessor-based ink-jet printing systems. The segment manufactures and markets products and systems that employ the following marking methods to meet customer needs: contact printing, indenting, etching, ink-jet printing and laser marking. Customers will often use a combination of these methods in order to achieve an appropriate mark. These methods apply product information required for identification and trace ability as well as to facilitate inventory and quality control, regulatory compliance and brand name communication. A significant portion of the revenue of the Marking Products segment is attributable to the sale of consumables, software and replacement parts in connection with the marking hardware sold by the Company. The Company develops inks, rubber and steel consumables in harmony with the marking equipment in which they are used, which is critical to assure ongoing equipment reliability and mark quality. Many marking equipment customers also use the Company's inks, solvents and cleaners. The principal customers for the Company's marking products include food and beverage processors, metal fabricators, producers of health and beauty products and manufacturers of textiles, plastic, rubber and building products. A large percentage of the segment's sales are outside the United States and are distributed through the Company's subsidiaries in Canada and Sweden in addition to other international distributors. Matthews owns a minority interest in distributors in Asia, Australia, France, Germany, the Netherlands and the United Kingdom. The marking products industry is fragmented, with many companies having limited product lines which focus on well-defined specialty markets. Other industry participants, like the Company, have broad product offerings and compete in various product markets and countries. In the United States, the Company has been supplying marking products for 150 years. Major raw materials for this segment's products include printing components, tool steels, rubber and chemicals, all of which are presently available in adequate supply from various sources. ITEM 1. BUSINESS, continued. COMPETITION: Bronze: Competition from other bronze memorialization product manufacturers, which is intense, is on the basis of reputation, product quality, delivery, price and design availability. In North America, the Company and its two major bronze competitors account for a substantial portion of the bronze memorial market. The Company also competes with upright granite monument and flush granite memorial providers. The Company believes that its superior quality, broad product lines, innovative designs, delivery capability, customer responsiveness, experienced personnel and customer-oriented merchandising systems are competitive advantages in its markets. The Company competes with several manufacturers in the crematory market principally on the basis of product quality and price. Competition in the mausoleum construction industry includes various construction companies throughout North America and is on the basis of design, quality and price. Competitors in the architectural market are numerous and include companies that manufacture cast and painted signs, plastic materials, sand-blasted wood and other fabricated products. Graphics Imaging: Graphics Imaging is one of several manufacturers of printing plates and providers of pre-press services with a national presence. The segment competes in a fragmented industry consisting of a few multi-plant regional printing plate suppliers and a large number of local one-plant companies located across the United States. Competition is on the basis of product quality, timeliness of delivery and price. The Company differentiates itself from the competition by consistently meeting customer demands and its ability to service customers nationwide. Marking Products: Competition is intense and based on product performance, service and price. The Company normally competes with specialty companies in specific marking applications. The Company believes that, in general, it has the broadest lines of marking products to address industrial marking applications. PATENTS, TRADEMARKS AND LICENSES: The Company holds a number of domestic and foreign patents and trademarks. However, the Company believes the loss of any or a significant number of patents or trademarks would not have a material impact on operations or revenues. ITEM 1. BUSINESS, continued. BACKLOG: Because the nature of the Company's business is primarily custom products made to order with short lead times, backlogs are not generally material in any of the Company's operations except for Gibraltar, IEEC and the Marking Products segment. Backlogs generally vary in a range of seven to nine months of sales for Gibraltar, four to eight months of sales for IEEC, and up to six weeks of sales in the Marking Products segment. REGULATORY MATTERS: The Company is subject to various federal, state and local laws and regulations relating to the protection of the environment. The Company believes that its current operations are in material compliance with all presently applicable environmental laws and regulations. The Company's expenditures for environmental compliance have not had, nor are they presently expected to have, a material adverse effect on the Company. The Clean Air Act Amendments of 1990 have had minimal impact to date on two of the Company's business segments, Graphics Imaging and Marking Products. In the United States, the Company's Bronze segment operates four nonferrous foundries, none of which is within the "major source" industry category as defined by the Environmental Protection Agency. The Bronze segment operations are regulated as "minor sources" at certain locations. No material capital expenditures are anticipated as a result of the Clean Air Act Amendments. Like most nonferrous foundry operations, the Company's plants produce a significant volume of residual materials as a result of the bronze casting process. Chief among these is spent foundry sands. Currently, the majority of these materials, including foundry sands, are regulated as solid waste under most state and federal laws. Pursuant to the Resource Conservation and Recovery Act, the Company is regulated as a generator of hazardous waste, and all plants are registered with the Environmental Protection Agency in accordance with applicable regulations. The Company has implemented detailed plans and procedures for waste management at each of its Bronze operating plants in the United States. ITEM 2. PROPERTIES. Principal properties of the Company and its majority-owned subsidiaries are as follows (properties are owned by the Company except as noted): Location Description of Property Square Feet - -------- ----------------------- ----------- Bronze: Pittsburgh, PA Manufacturing / Division Offices 97,000 Apopka, FL Manufacturing 40,000 Melbourne, Australia Manufacturing 26,000(1) Milton, Ontario, Canada Manufacturing 30,000 Montreal, Quebec, Canada Manufacturing 16,000(1) Nanuet, NY Manufacturing 15,000(1) Nashotah, WI Manufacturing 12,000(1) Parma, Italy Manufacturing / Warehouse 231,000(1) Searcy, AR Manufacturing 104,000 Seneca Falls, NY Manufacturing 21,000 Sun City, CA Manufacturing 24,000 Graphics Imaging: Pittsburgh, PA Manufacturing / Division Offices 56,000 Atlanta, GA Manufacturing 16,000 Cranberry Twp., PA Manufacturing 15,000(1) Dallas, TX Manufacturing 15,000(1) Denver, CO Manufacturing 12,000(1) High Point, NC Manufacturing 35,000(1) Kansas City, MO Manufacturing 42,000(1) LaPalma, CA Manufacturing 22,000 St. Louis, MO Manufacturing 25,000 Vienna, Austria Manufacturing 12,000(1) Marking Products: Pittsburgh, PA Manufacturing / Division Offices 67,000 Pittsburgh, PA Ink Manufacturing 18,000 Gothenburg, Sweden Manufacturing / Distribution 28,000(1) Corporate Office: Pittsburgh, PA General Offices 48,000(2) (1) These properties are leased by the Company under operating lease arrangements. Rent expense incurred by the Company for leased facilities was $1,045,000 in fiscal 2000. (2) The Company uses approximately one-third of this building and leases, or offers to lease, the remainder to unrelated parties. All of the owned properties are unencumbered. The Company believes its facilities are generally well suited for their respective uses and are of adequate size and design to provide the operating efficiencies necessary for the Company to be competitive. The Company's facilities provide adequate space for meeting its near term production requirements and have availability for additional capacity. The Company intends to continue to expand and modernize its facilities as necessary to meet the demand for its products. ITEM 3. LEGAL PROCEEDINGS. The Company is party to various legal proceedings, the eventual outcome of which are not predictable. It is possible that an unfavorable resolution of these matters could have a material impact to the Company. Although the ultimate disposition of these proceedings is not presently determinable, management is of the opinion that they should not result in liabilities in an amount which would materially affect the Company's consolidated financial position, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the Company's security holders during the fourth quarter of fiscal year 2000. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. (a) Market Information: The authorized common stock of the Company is divided into two classes consisting of Class A Common Stock, $1 par value, and Class B Common Stock, $1 par value. Shares of Class A stock have one vote per share and are freely transferable subject to applicable securities laws. Shares of Class B stock have ten votes per share and are only transferable by a shareholder to the Company or to an active employee of the Company. If shareholders wish to otherwise sell Class B Common Stock, the Company may, at its discretion, purchase such shares at the fair market value per share of the Company's Class A Common Stock or permit shareholders to tender such shares to the Company in exchange for an equal number of shares of Class A Common Stock. In 1998, the Board of Directors declared a two-for-one stock split on the Company's Class A and Class B Common Stock in the form of a 100% stock distribution. Shareholders' equity was adjusted for the stock split by reclassifying from additional paid-in capital and retained earnings to common stock the par value of the additional shares arising from the split. All per share amounts and numbers of shares in this report reflect the stock split. The Company's Class A Common Stock is traded on the NASDAQ National Market System. The following table sets forth the high, low and closing prices as reported by NASDAQ (adjusted for the stock split) for the periods indicated: High Low Close ---- --- ----- Fiscal 2000: Quarter ended: September 30, 2000 $29.75 $27.63 $29.38 June 30, 2000 29.50 20.00 29.00 March 31, 2000 27.88 20.00 22.63 December 31, 1999 29.75 20.00 27.50 Fiscal 1999: Quarter ended: September 30, 1999 $32.88 $24.88 $30.13 June 30, 1999 30.38 25.13 29.63 March 31, 1999 31.38 25.00 27.38 December 31, 1998 34.00 24.25 31.50 The Company has an active stock repurchase program, which was initiated in fiscal 1996. The program was extended for the third time by the Company in April 2000. Under the program, the Company's Board of Directors have authorized the repurchase of a total of 4,000,000 shares of Matthews Class A and Class B Common Stock, of which 3,164,138 shares have been repurchased as of September 30, 2000. The buy-back program is designed to increase shareholder value, enlarge the Company's holdings of its Class A and Class B Common Stock, and add to earnings per share. Repurchased shares may be retained in treasury, utilized for acquisitions, or reissued to employees or other purchasers, subject to the restrictions of the Company's Restated Articles of Incorporation. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS, continued. (a) Market Information, continued: In conjunction with the buy-back program, the Company invoked the provisions of the Fifth Article of its Restated Articles of Incorporation. Such Article provides (among other things) that any shareholder wishing to sell or convert any Class B Common Stock must first offer such shares to the Company for redemption. The Company will then have an option to purchase such shares for a 24-hour period. (b) Holders: The number of registered holders of the Company's common stock at November 30, 2000 was as follows: Class A Common Stock 460 Class B Common Stock 232 (c) Dividends: A quarterly dividend of $.05 per share was paid for the fourth quarter of fiscal 2000 to shareholders of record on October 31, 2000. The Company paid quarterly dividends of $.0475 per share for the first three quarters of fiscal 2000 and the fourth quarter of fiscal 1999. The Company paid quarterly dividends of $.045 per share for the first three quarters of fiscal 1999. Cash dividends have been paid on common shares in every year for at least the past thirty years. It is the present intention of the Company to continue to pay quarterly cash dividends on its common stock. However, there is no assurance that dividends will be declared and paid as the declaration and payment of dividends is at the discretion of the Board of Directors of the Company and is dependent upon the Company's financial condition, results of operations, cash requirements, future prospects and other factors deemed relevant by the Board. ITEM 6. SELECTED FINANCIAL DATA.
Years ended September 30, ------------------------------------------------------------------- 2000 1999 1998 1997 1996(1) ----------- ----------- ----------- ----------- ----------- (Not Covered by Report of Independent Accountants) Net sales $262,364,902 $239,329,223 $211,622,057 $189,168,640 $171,977,619 Gross profit 118,088,808 103,036,695 93,050,222 83,500,886 76,640,900 Operating profit 47,776,052 40,947,991 35,928,944 30,887,395 26,771,380 Interest expense 1,487,883 867,400 466,304 337,375 131,364 Income before income taxes 45,938,350 41,276,659 37,132,283 32,297,897 33,522,616 Income taxes 18,015,431 16,260,957 14,630,591 12,671,833 13,265,062 ---------- ---------- ---------- ---------- ---------- Net income $ 27,922,919 $ 25,015,702 $ 22,501,692 $ 19,626,064 $ 20,257,554 ========== ========== ========== ========== ========== Earnings per common share: Basic $ 1.80 $ 1.58 $ 1.38 $ 1.14 $ 1.14 Diluted 1.76 1.54 1.34 1.11 1.11 Weighted-average common shares outstanding: Basic 15,515,508 15,851,393 16,336,359 17,194,073 17,781,824 Diluted 15,851,577 16,241,153 16,770,214 17,696,793 18,213,866 Cash dividends per share .193 .183 .173 .163 .145 Total assets $220,665,450 $225,677,572 $187,205,764 $169,204,390 $153,411,709 Long-term debt, noncurrent 13,908,448 14,144,038 1,434,679 2,151,413 - (1) Fiscal 1996 included after-tax income of $2.9 million ($.16 per share, diluted) which consisted of a gain on the sale of a subsidiary net of certain non-operating charges.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the consolidated financial statements of Matthews International Corporation and related notes thereto. In addition, see "Cautionary Statement Regarding Forward-Looking Information" included in Part I of this Annual Report on Form 10-K. RESULTS OF OPERATIONS: The following table sets forth certain income statement data of the Company expressed as a percentage of net sales for the periods indicated and the percentage change in such income statement data from year to year. Years Ended September 30, Percentage Change ---------------------- ----------------- 2000- 1999- 2000 1999 1998 1999 1998 ---- ---- ---- ----- ----- Sales 100.0% 100.0% 100.0% 9.6% 13.1% Gross profit 45.0 43.1 44.0 14.6 10.7 Operating profit 18.2 17.1 17.0 16.7 14.0 Income before taxes 17.5 17.2 17.5 11.3 11.2 Net income 10.6 10.5 10.6 11.6 11.2 Comparison of Fiscal 2000 and Fiscal 1999: Sales for the year ended September 30, 2000 were $262.4 million and were $23.1 million, or 9.6%, higher than sales of $239.3 million for the year ended September 30, 1999. Each of the Company's three segments contributed to the revenue growth over fiscal 1999. Bronze segment sales for fiscal 2000 were $140.4 million, representing an increase of $16.6 million, or 13.4%, over fiscal 1999. The sales growth for the Bronze segment resulted primarily from the Company's acquisition of Caggiati S.p.A. in June 1999 and higher sales of architectural and memorial products. These increases were partially offset by a decline in mausoleum construction revenues. Sales for the Graphics Imaging segment for the year ended September 30, 2000 were $90.2 million, representing an increase of $5.1 million, or 6.0%, over fiscal 1999. The increase in Graphics Imaging sales for fiscal 2000 principally resulted from the Company's purchase of a 50% interest in S+T GmbH & Co. KG ("S+T") in September 1998. S+T was recorded under the equity method of accounting for the first six months of fiscal 1999. The consolidated financial statements of Matthews reflected the accounts of S+T effective April 1, 1999 as a result of a change in control. Fiscal 2000 sales for the Graphics Imaging segment also reflected higher sales volume for Tukaiz Communications, L.L.C. ("Tukaiz"). The sales volume increase for Tukaiz, a 50%-owned subsidiary of Matthews, resulted primarily from the installation of a commercial printing operation in fiscal 1999. On December 7, 2000, Matthews signed an agreement for the sale of its fifty percent interest in Tukaiz (see "Subsequent Events"). Marking Products segment sales for the year ended September 30, 2000 were $31.8 million, representing an increase of $1.4 million, or 4.5%, over fiscal 1999. The segment's sales increase for the current year resulted primarily from higher volume in North America of ink-jet equipment and related products, reflecting the favorable impact of new product introductions. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued. Comparison of Fiscal 2000 and Fiscal 1999, continued: Gross profit for the year ended September 30, 2000 was $118.1 million, representing an increase of $15.1 million, or 14.6%, compared to fiscal 1999 gross profit of $103.0 million. Gross profit for the Bronze segment was higher in fiscal 2000 principally as a result of the Company's acquisition of Caggiati S.p.A. in June 1999. In addition, higher sales of architectural and memorial products combined with improved margins contributed to the segment's gross profit increase over fiscal 1999. Gross profit for the Graphics Imaging segment increased as a result of higher sales for the year, reflecting the investment in S+T in September 1998 and sales growth for Tukaiz. Marking Products gross profit also improved over fiscal 1999 reflecting an increase in sales volume and a change in product mix. Consolidated gross profit as a percent of sales for the year ended September 30, 2000 increased to 45.0%, compared to 43.1% a year ago. The higher gross profit percentage in fiscal 2000 is mainly due to a change in product mix in both the Bronze and Marking Products segments and improved results for Tukaiz. Selling and administrative expenses for the year ended September 30, 2000 were $70.3 million, compared to $62.1 million for fiscal 1999. The increase of $8.2 million, or 13.2%, over the prior year principally resulted from the acquisitions of Caggiati S.p.A. and S+T combined with an increase in marketing and promotional costs within the Bronze segment. Consolidated selling and administrative expenses as a percent of sales increased to 26.8% for fiscal 2000, compared to 26.0% for fiscal 1999, primarily due to the acquisition of Caggiati S.p.A., which has a higher rate of selling costs to sales. Operating profit for the year ended September 30, 2000 was $47.8 million, representing an increase of $6.9 million, or 16.7%, over operating profit of $40.9 million for fiscal 1999. Each of the Company's segments contributed to the growth in consolidated operating profit. Graphics Imaging operating profit for fiscal 2000 was $9.6 million, representing an increase of $4.5 million, or 87.7%, compared to operating profit of $5.1 million for fiscal 1999. The segment's fiscal 2000 results were favorably impacted by the Company's investment in S+T combined with an improvement in the operating results of Tukaiz. Operating profit for the Bronze segment for the year ended September 30, 2000 was $33.4 million, compared to $31.8 million for fiscal 1999. The increase of $1.6 million, or 5.2%, resulted primarily from the acquisition of Caggiati S.p.A. In addition, higher sales and improved margins for architectural and memorial products more than offset a decline in profitability from mausoleum construction projects. Fiscal 2000 operating profit for the Marking Products segment was $4.7 million, representing an increase of $700,000, or 16.9%, over fiscal 1999 operating profit of $4.0 million. Higher sales in North America of ink-jet equipment and related products as a result of new product introductions and a better product mix resulted in the operating profit growth. Investment income for the year ended September 30, 2000 was $1.8 million, compared to $1.8 million for fiscal 1999. Investment income for the prior year included equity income of $310,000 from the Company's investment in S+T, which was recorded under the equity method of accounting through the first six months of fiscal 1999. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued. Comparison of Fiscal 2000 and Fiscal 1999, continued: Interest expense for the year ended September 30, 2000 was $1.5 million, compared to $867,000 for fiscal 1999. The increase in interest expense principally related to fiscal 1999 borrowings by Tukaiz and new borrowings and assumed debt in connection with the acquisition of Caggiati S.p.A. Other income (deductions), net, for the year ended September 30, 2000 represented an increase to pre-tax income of $125,000 compared to a reduction of $570,000 for fiscal 1999. Other deductions in fiscal 1999 included costs for organizational changes and other unusual non-operating expenses. For the year ended September 30, 2000, minority interest deduction was $2.3 million, compared to $22,000 for fiscal 1999. The higher minority interest deduction in fiscal 2000 resulted from the full year impact of the consolidation of S+T and an improvement in the operating results of Tukaiz. The Company's effective tax rate for the year ended September 30, 2000 was 39.2%, compared to 39.4% for the year ended September 30, 1999. The decline reflects a lower effective state tax rate. The difference between the Company's effective tax rate and the Federal statutory rate of 35% primarily reflects the impact of state and foreign income taxes and non-deductible goodwill amortization. Comparison of Fiscal 1999 and Fiscal 1998: Sales for the year ended September 30, 1999 were $239.3 million and were $27.7 million, or 13.1%, higher than sales of $211.6 million for the year ended September 30, 1998. The increase in sales for fiscal 1999 resulted from revenue growth in all three of the Company's business segments. Fiscal 1999 sales for the Bronze segment were $123.8 million, representing an increase of $17.5 million, or 16.5%, over fiscal 1998. The sales increase primarily reflected the Company's acquisitions of Gibraltar Mausoleum Construction Company ("Gibraltar") in September 1998 and Caggiati S.p.A. in June 1999. Graphics Imaging segment sales were $85.1 million in fiscal 1999, representing an increase of $9.8 million, or 13.0%, over fiscal 1998. The increase in Graphics Imaging sales resulted principally from the Company's acquisitions of a 50% interest in O.N.E. Color Communications, L.L.C. ("O.N.E.") in May 1998 and a 50% interest in S+T in September 1998. In addition, sales for the Graphics Imaging segment were favorably impacted by the installation of a commercial printing operation at Tukaiz. The increase in sales from these events was partially offset by a decline in sales for the segment's existing operations resulting from weak demand for corrugated printing plates. Marking Products segment sales for the year ended September 30, 1999 were $30.5 million, representing an increase of $400,000 over fiscal 1998. Sales for the segment's North American operations increased 7.0% over the prior year primarily as a result of new product offerings during fiscal 1999. These increases were partially offset by a decline resulting from the sale of the segment's distribution operation in France in February 1998. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued. Comparison of Fiscal 1999 and Fiscal 1998, continued: Gross profit for the year ended September 30, 1999 was $103.0 million, or 43.1% of sales, compared to $93.1 million, or 44.0% of sales, for fiscal 1998. The increase in consolidated gross profit of approximately $10.0 million, or 10.7%, reflected higher gross profit levels in all three business segments. Increases in gross profit in the Bronze and Graphics Imaging segments resulted from higher sales, reflecting the Company's recent acquisitions. Gross profit as a percent of sales for the Bronze segment in fiscal 1999 was comparable with fiscal 1998 and reflected higher margins on sales of memorialization products by Caggiati S.p.A. offset by lower margins on sales of mausoleums. Fiscal 1999 gross profit as a percent of sales for the Graphics Imaging segment was lower than the prior year as a result of lower margins on the segment's pre-press sales, higher material costs related to the commercial printing operation of Tukaiz and an increase in depreciation expense due to higher levels of capital investment. Capital expenditures for the segment in fiscal 1999 included the investment by Tukaiz in commercial printing equipment and related facilities. Gross profit and gross profit as a percent of sales for the Marking Products segment for fiscal 1999 were higher than the prior year reflecting higher North American sales and an improved product mix. Selling and administrative expenses for the year ended September 30, 1999 were $62.1 million, representing an increase of $5.0 million, or 8.7%, over $57.1 million for fiscal 1998. The increase over the prior year principally resulted from the acquisitions of O.N.E. in May 1998 and Caggiati S.p.A. in June 1999. In addition, administrative costs in the Graphics Imaging segment were higher in fiscal 1999 reflecting one-time expenses associated with implementing organizational changes. Partially offsetting these increases were lower selling and administrative costs for the Marking Products segment due to the sale of the Company's subsidiary in France and a reduction in the Company's corporate administration costs. Excluding selling and administrative expenses of Caggiati S.p.A. for the period, the Bronze segment's selling and administrative expenses declined slightly in fiscal 1999 as a result of cost improvements combined with lower incremental selling costs of Gibraltar. Consolidated selling and administrative expense as a percent of sales was 26.0% for the year ended September 30, 1999 compared to 27.0% for fiscal 1998. Operating profit for the year ended September 30, 1999 was $40.9 million and was $5.0 million, or 14.0%, higher than fiscal 1998. The improvement for fiscal 1999 resulted from increases in the operating profits of the Bronze and Marking Products segments of 22.1% and 34.4%, respectively. Operating profit for the Bronze segment increased to $31.8 million in fiscal 1999 as a result of higher revenues from the acquisitions of Caggiati S.p.A. and Gibraltar, an increase in sales and improved margins for cremation products and improvements in the segment's selling and administrative costs. Fiscal 1999 operating profit for the Marking Products segment was $4.0 million compared to operating profit of $3.0 million in fiscal 1998. The increase primarily resulted from higher sales in the segment's North American operations as a result of new product offerings. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued. Comparison of Fiscal 1999 and Fiscal 1998, continued: Operating profit for the Graphics Imaging segment in fiscal 1999 was $5.1 million, compared to $6.9 million in fiscal 1998. The 25.7% decline in operating profit from fiscal 1998 was due to several factors which included weak demand for corrugated printing plates, lower margins on the segment's pre-press sales, and an increase in depreciation expense due to higher levels of capital investment at Tukaiz. The Graphics Imaging segment also incurred one-time expenses of approximately $400,000 during fiscal 1999 associated with the start-up of a commercial printing operation at Tukaiz and the implementation of organizational changes within the segment. Investment income for the year ended September 30, 1999 was $1.8 million, compared to $2.5 million for fiscal 1998. The decline in investment income primarily reflected a reduction in the Company's average cash and investment balances. The Company's average cash and investment balances were lower than the prior year primarily as a result of acquisitions and stock repurchases. Interest expense for the year ended September 30, 1999 was $867,000, compared to $466,000 for fiscal 1998. Interest expense principally related to new borrowings and assumed debt in connection with the acquisition of Caggiati S.p.A., the long-term debt and capital lease obligations of Tukaiz, and the Company's obligations related to the acquisition of O.N.E. Other income (deductions), net, for the year ended September 30, 1999 represented a reduction to pre-tax income of $570,000, compared to a reduction of $382,000 for fiscal 1998. Fiscal 1998 included gains on the sale of various fixed assets. Minority interest, which was $22,000 for fiscal 1999, related to income generated by Tukaiz and S+T. Minority interest was $461,000 for fiscal 1998. The reduction in minority interest for fiscal 1999 reflected a decline in the operating results of Tukaiz. The Company's effective tax rate for the year ended September 30, 1999 was 39.4%, compared to 39.4% for fiscal 1998. The difference between the Company's effective tax rate and the Federal statutory rate of 35% primarily reflected the impact of state income taxes. Comparison of Fiscal 1998 and Fiscal 1997: Sales for the year ended September 30, 1998 were $211.6 million and were $22.4 million, or 11.9%, higher than sales of $189.2 million for the year ended September 30, 1997. The sales increase for fiscal 1998 resulted from higher sales in the Company's Graphics Imaging and Bronze segments. Fiscal 1998 sales for the Graphics Imaging segment were $75.3 million, an increase of $17.5 million, or 30%, over the prior year primarily reflecting acquisitions completed during fiscal years 1998 and 1997. The Company's acquisitions included Carolina Repro-Graphic ("Carolina") in May 1997, a 50% interest in Tukaiz in January 1997 and a 50% interest in O.N.E. in May 1998. Bronze segment sales for the year ended September 30, 1998 were $106.3 million, representing an increase of $9.9 million, or 10%, over fiscal 1997. The higher level of sales for fiscal 1998 mainly reflected an increase in the unit volumes of bronze and granite memorial products. In addition, sales of cremation equipment and cremation-related products increased for the year. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued. Comparison of Fiscal 1998 and Fiscal 1997, continued: Sales for the Marking Products segment in fiscal 1998 were $30.1 million, representing a decrease of $4.9 million, or 14%, below fiscal 1997. The decline, which was expected, resulted from the sale of the segment's distribution operations in Australia (August 1997) and France (February 1998), both of which had historically produced marginal results for the Company. Fiscal 1998 sales for the segment's North American operations increased 4.0% compared to fiscal 1997. Gross profit for the year ended September 30, 1998 was $93.1 million, or 44.0% of sales, compared to $83.5 million, or 44.1% of sales, for the year ended September 30, 1997. The increase in gross profit of $9.6 million, or 11.4%, resulted from higher sales for the Graphics Imaging segment and increased sales and an improvement in the gross margin percentage for the Bronze segment. Marking Products gross profit for the year ended September 30, 1998 declined from fiscal 1997 reflecting the divestitures of the segment's distribution operations in Australia and France. Consolidated gross profit as a percent of sales for fiscal 1998 was relatively consistent with fiscal 1997. Gross profit as a percent of sales for the Bronze segment increased in fiscal 1998 reflecting improvements in sales volume and operating efficiencies. For the Graphics Imaging and Marking Products segments, the fiscal 1998 gross profit percentage was slightly lower than fiscal 1997 due to changes in product mix. Selling and administrative expenses for the year ended September 30, 1998 were $57.1 million, representing an increase of $4.5 million, or 8.6%, over fiscal 1997. The increase in selling and administrative expenses from fiscal 1997 principally resulted from acquisitions by the Graphics Imaging segment during fiscal years 1998 and 1997. In addition, selling costs for the Bronze segment were higher in fiscal 1998 reflecting increased marketing and promotional expenses. Partially offsetting these increases was a reduction in Marking Products selling and administrative costs resulting from the sale of the segment's distribution operations in Australia and France. Consolidated selling and administrative expenses were 27.0% of sales for fiscal 1998 compared to 27.8% for fiscal 1997. Operating profit for the year ended September 30, 1998 was $35.9 million and was $5.0 million, or 16.3%, higher than fiscal 1997, reflecting increases in all three of the Company's business segments. Operating profit for the Graphics Imaging segment was $6.9 million, representing an increase of $1.4 million, or 25.5%, over fiscal 1997. The increase was primarily the result of the segment's acquisitions. Bronze segment operating profit for the year ended September 30, 1998 was $26.0 million, representing an increase of $3.4 million, or 15.2%, over fiscal 1997. The increase in Bronze operating profit primarily reflected the segment's higher sales volume for the year combined with improved cost-price relationships for some products. Fiscal 1998 operating profit for the Marking Products segment also improved over fiscal 1997 despite the sale of the segment's distribution operations in Australia and France. The segment's operating profit was $3.0 million for the year ended September 30, 1998, representing an increase of 7.2% over fiscal 1997. The improvement resulted from higher sales combined with lower selling costs in the segment's North American operations. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued. Comparison of Fiscal 1998 and Fiscal 1997, continued: Investment income for the year ended September 30, 1998 was $2.5 million, compared to $2.5 million for fiscal 1997. The Company's average cash and investment balances were lower in fiscal 1998 as a result of acquisitions and stock repurchases. The effect on investment income of the lower average cash and investment balances was offset by a higher rate of return on investments. Interest expense for the year ended September 30, 1998 was $466,000, compared to $337,000 for fiscal 1997. Interest expense principally related to the Company's capital lease obligations. Other income (deductions), net for the year ended September 30, 1998 represented a reduction in pre-tax income of $382,000 compared to a reduction of $318,000 for fiscal 1997. Minority interest for the year ended September 30, 1998 related to Tukaiz. The Company's effective tax rate for the year ended September 30, 1998 was 39.4%, compared to an effective rate of 39.2% for fiscal 1997. The difference between the Company's fiscal 1998 effective tax rate and the Federal statutory rate of 35% primarily reflected the impact of state income taxes. LIQUIDITY AND CAPITAL RESOURCES: Cash flow from operations was $38.0 million for the year ended September 30, 2000, compared to $27.8 million for fiscal 1999 and $36.2 million for fiscal 1998. Fiscal 2000 operating cash flow principally reflected the Company's net income of $27.9 million adjusted for non-cash expenses such as depreciation and amortization. Operating cash flow for fiscal 2000 also included a tax benefit of $2.4 million from exercised stock options, which was offset by net changes of $2.9 million in working capital items. Fiscal 1999 operating cash flow was impacted by an increase in accounts receivable related to mausoleum construction revenues and the payment of income tax accruals. Operating cash flow for the year ended September 30, 1998 reflected the Company's net income plus non-cash expenses and an increase in the Company's compensation-related accruals. Cash flow for fiscal 1999 and 1998 also included a tax benefit of $1.4 million and $1.5 million, respectively, from exercised stock options. Cash used in investing activities was $24.4 million for the year ended September 30, 2000, compared to $18.0 million for fiscal 1999 and $5.7 million for fiscal 1998. Investing activities for fiscal 2000 reflected capital expenditures of $7.7 million, net purchases of investment securities of $4.9 million and payments of $12.2 million in connection with the acquisitions of Repro Busek Druckvorstufentechnik GmbH & Co. KG, Caggiati S.p.A. and S+T. Under the acquisition agreement for Caggiati S.p.A., Matthews paid cash of Lit. 20.2 billion (U.S.$10.9 million) upon closing with Lit. 7.2 billion (U.S.$3.5 million) paid on June 1, 2000 and the remaining balance of Lit. 7.2 billion payable on June 1, 2001. The purchase price for the acquisition of a 50% interest in S+T (September 1998) was paid in January 2000 in accordance with the purchase agreement. See "Acquisitions" for further discussion of the Company's acquisitions during the last three fiscal years. Matthews purchased various investment securities in the fiscal 2000 first quarter to obtain a better rate of return on the Company's excess cash. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued. LIQUIDITY AND CAPITAL RESOURCES, continued: Investing activities for the year ended September 30, 1999 included capital expenditures of $13.3 million and acquisitions of $10.8 million (net of cash acquired). Fiscal 1999 acquisitions consisted primarily of the purchase of Caggiati S.p.A. in June 1999. Investing activities for fiscal 1999 also reflected proceeds from the net disposition of investments of $5.5 million. Cash used in investing activities for fiscal 1998 included capital expenditures of $7.3 million and acquisitions of $16.2 million. Fiscal 1998 acquisitions included Gibraltar and a 50% interest in O.N.E. Investing activities for fiscal 1998 also included proceeds from the net disposition of investments of $16.8 million. Capital expenditures were $7.7 million for the year ended September 30, 2000, compared to $13.3 million and $7.3 million for fiscal 1999 and 1998, respectively. Capital expenditures in each of the last three fiscal years reflected reinvestment in the Company's three business segments and were made primarily for the purchase of new manufacturing machinery, equipment and facilities designed to improve product quality, increase manufacturing efficiency, lower production costs and meet regulatory requirements. The higher level of capital expenditures in fiscal 1999 resulted primarily from investments in commercial printing equipment and facilities for Tukaiz and production equipment for the Bronze segment operations in Searcy, Arkansas. Capital expenditures for the last three fiscal years were primarily financed through operating cash and the related assets are unencumbered. The investment in commercial printing equipment and facilities for Tukaiz was partially financed through a bank loan. Capital spending for property, plant and equipment has averaged $9.4 million for the last three fiscal years. The capital budget for fiscal 2001 is $11.0 million. The Company expects to generate sufficient cash from operations to fund all anticipated capital spending projects. Cash used in financing activities for the year ended September 30, 2000 was $14.4 million, consisting of net treasury stock purchases of $9.9 million, proceeds of $3.9 million from borrowings by Caggiati S.p.A., repayments of $5.4 million on long-term debt of Caggiati S.p.A. and Tukaiz, and dividend payments of $3.0 million ($0.1925 per share) to the Company's shareholders. Cash used in financing activities in fiscal 1999 was $3.6 million and included borrowings of $10.9 million (Lit. 20.2 billion) for the acquisition of Caggiati S.p.A. and $4.0 million by Tukaiz to finance capital projects. Repayments under these borrowings and the Company's capital lease obligations were $1.6 million in fiscal 1999. Fiscal 1999 financing activities also included net treasury stock purchases of $14.0 million and the Company's dividends on common stock of $2.9 million ($0.1825 per share). Cash used in financing activities for the year ended September 30, 1998 was $24.5 million and consisted of net treasury stock purchases of $20.5 million, the Company's dividends on common stock of $2.8 million ($.1725 per share) and repayments under the Company's capital lease agreements of $1.2 million. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued. LIQUIDITY AND CAPITAL RESOURCES, continued: The Company has an active stock repurchase program, which was initiated in fiscal 1996. The program was extended for the third time by the Company in April 2000. Under the program, the Company's Board of Directors have authorized the repurchase of a total of 4,000,000 shares of Matthews Class A and Class B Common Stock, of which 3,164,138 shares have been repurchased as of September 30, 2000. The buy-back program is designed to increase shareholder value, enlarge the Company's holdings of its Class A and Class B Common Stock, and add to earnings per share. Repurchased shares may be retained in treasury, utilized for acquisitions, or reissued to employees or other purchasers, subject to the restrictions of the Company's Restated Articles of Incorporation. The Company has a Revolving Credit and Term Loan Agreement. Under terms of the agreement, the Company may borrow principal amounts up to $10.0 million in the aggregate at various interest rate options approximating current market rates. The Revolving Credit and Term Loan Agreement requires the Company to maintain minimum levels of consolidated working capital and tangible net worth. No amounts were outstanding under this agreement at September 30, 2000 and 1999. The Company has a line of credit of $500,000 (Canadian dollars) which provides for borrowings at the bank's prime interest rate. The Company has a $500,000 (U.S.) foreign exchange line of credit for standby letters of credit to support performance guarantees. There were no borrowings outstanding on these lines of credit at September 30, 2000 and 1999. Caggiati S.p.A. has several line of credit arrangements with various Italian banks. Aggregate outstanding borrowings at September 30, 2000 under the lines of credit totaled $1.5 million. The weighted-average interest rate on these borrowings, which are secured by certain trade accounts receivable, was 5.0% at September 30, 2000. Tukaiz has a line of credit of $1.5 million, which bears interest at the bank's prime rate, which was 9.5% at September 30, 2000. No amounts were outstanding under this line of credit at September 30, 2000. Consolidated working capital of the Company was $48.0 million at September 30, 2000, compared to $36.2 million and $32.4 million at September 30, 1999 and 1998, respectively. Cash and cash equivalents were $29.2 million at September 30, 2000, compared to $31.5 million and $25.4 million at September 30, 1999 and 1998, respectively. The Company's current ratio at September 30, 2000 was 2.0, compared to 1.6 and 1.7 at September 30, 1999 and 1998, respectively. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued. ACQUISITIONS: On August 1, 2000, Matthews purchased a 75% interest in Repro Busek Druckvorstufentechnik GmbH & Co. KG ("Busek"), which is headquartered in Vienna, Austria. Products and services of Busek include pre-press packaging, digital and analog flexographic printing plates, design, art work, lithography and color separation. Busek serves customers in Austria, Hungary, Poland and the Czech Republic. The combination of the Company's Graphics Imaging business and Busek is an important part of Matthews' strategy to become a worldwide leader in the graphics industry and service multinational customers on a global basis. Matthews completed the largest acquisition in its history on June 1, 1999 with the purchase of Caggiati S.p.A. Caggiati S.p.A., with consolidated annual sales of approximately $25 million (U.S.), is the leading supplier of bronze memorialization products in Europe. Caggiati S.p.A. is based in Colorno (Parma), Italy and has two subsidiaries: Caggiati Espana S.A. in Valencia, Spain and Caggiati France S.a.r.l. in Lyon, France. The purchase price was Lit. 34.6 billion (U.S.$19.0 million) cash plus the assumption of bank debt of Lit. 10.2 billion (U.S.$5.5 million) and certain other trade liabilities. Matthews paid cash of Lit. 20.2 billion (U.S.$10.9 million) upon closing with Lit. 7.2 billion (U.S.$3.5 million) paid on June 1, 2000 and the remaining balance of Lit. 7.2 billion payable on June 1, 2001. Interest at an annual rate of 5% is payable on the deferred payments. The cash payments were financed through borrowings from an Italian bank, UniCredito Italiano, Parma, Italy. The combination of Matthews and Caggiati S.p.A. is an important part of Matthews' strategy to enhance its position as the worldwide leader in the memorialization industry. Acquisitions in fiscal 1998 totaled approximately $23.0 million and included Gibraltar, a fifty percent interest in S+T and a fifty percent interest in O.N.E. In September 1998, Matthews purchased the assets of Gibraltar, which is a leading builder of mausoleums in the United States. The acquisition of Gibraltar is intended to expand Matthews' products and services in the growing segments in the memorial industry of cremation and mausoleum entombment. In September 1998, Matthews acquired a fifty percent interest in S+T. The operations of S+T, located in Julich, Germany, consist principally of flexographic printing preparation and the manufacture of photopolymer printing plates for the European packaging industry. The investment in S+T was recorded under the equity method of accounting until March 31, 1999. As a result of a change in control of S+T, the consolidated financial statements of Matthews included the accounts of S+T effective April 1, 1999. The combination of Matthews and S+T is an important part of Matthews' strategy to become a worldwide leader in the graphics industry and serve multinational customers on a global basis. In May 1998, Matthews acquired a fifty percent interest in O.N.E., a digital graphics service company located in Oakland, California. O.N.E. provides digital graphic services to advertising agencies and packaging markets. The combination of Matthews and O.N.E. is an integral part of Matthews' strategy to become a worldwide leader in advanced applications of digital graphics. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued. ACQUISITIONS, continued: Matthews has accounted for these acquisitions using the purchase method and, accordingly, recorded the acquired assets and liabilities at their estimated fair values at the acquisition dates. Any excess of purchase price over the fair value of net assets acquired has been recorded as goodwill to be amortized on a straight-line basis over periods ranging from 20 to 25 years. SUBSEQUENT EVENTS: On October 21, 2000, Matthews acquired certain assets and liabilities of The SLN Group, Inc. ("SLN"). SLN, located in Nanuet, New York, is a manufacturer and marketer of photo-etched metal plaques and water-jet cut letters and logos. The acquisition of SLN is intended to broaden Matthews' offerings for identification and recognition products. On November 21, 2000, Matthews acquired Press Ready Plate, Inc. ("Press Ready"). Press Ready, located in Kansas City, Missouri, provides pre-press services and printing plates to the flexible packaging industry. The acquisition of Press Ready is designed to increase Matthews' presence in the market for pre-press services used by the flexible packaging industry. On December 7, 2000, Matthews signed an agreement for the sale of its fifty percent interest in Tukaiz. Net proceeds to Matthews from the sale, after the repayment of intercompany debt, will approximate $10.0 million. The transaction, which is expected to close before January 31, 2001, is contingent on certain factors including the purchaser's ability to complete financing arrangements. All intercompany debt provided by Matthews to Tukaiz, including a $5.5 million Subordinated Convertible Note, will be repaid upon the closing of this transaction. FORWARD-LOOKING INFORMATION: The Company's objective with respect to operating performance is to increase annual earnings per share in the range of 12% to 15% annually. For the past six fiscal years, the Company has achieved an average annual increase in earnings per share of 14.6%. Matthews International Corporation has a three-pronged strategy to attain the annual growth rate objective, which has remained unchanged from the prior year. This strategy consists of the following: internal growth (which includes new product development and the expansion into new markets with existing products), acquisitions and share repurchases under the Company's stock repurchase program (see "Liquidity and Capital Resources"). For the fiscal year ended September 30, 2001, the Company expects to achieve growth in earnings per share, excluding any one-time gain on the proposed sale of Tukaiz, in line with its annual objectives. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued. YEAR 2000 ISSUE The Company has assessed the impact of the Year 2000 issue on its operations and information systems. Costs incurred for this assessment and for systems modifications required to address any Year 2000 issues have not been material. The Company's significant operating and information systems are Year 2000 compliant and, as such, the Year 2000 issue did not have a material impact on the consolidated financial position, results of operations or cash flows of the Company. STOCK SPLIT In 1998, the Board of Directors declared a two-for-one stock split on the Company's Class A and Class B Common Stock in the form of a 100% stock distribution. Shareholders' equity was adjusted for the stock split by reclassifying from additional paid-in capital and retained earnings to common stock the par value of the additional shares arising from the split. All per share amounts and numbers of shares in this report reflect the stock split. ACCOUNTING PRONOUNCEMENT: In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements. SAB No. 101 outlines basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. The Company will be required to implement SAB No. 101 in the fourth quarter of its fiscal year ending September 30, 2001. The provisions of SAB No. 101 are not expected to have a material impact on the Company's consolidated financial statements. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Description Pages - ----------- ----- Report of Independent Accountants 28 Consolidated Balance Sheet 29-30 Consolidated Statement of Income 31 Consolidated Statement of Shareholders' Equity 32 Consolidated Statement of Cash Flows 33 Notes to Consolidated Financial Statements 34-52 Supplementary Financial Information 53 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Matthews International Corporation: In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Matthews International Corporation and subsidiaries at September 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2000 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP Pittsburgh, Pennsylvania November 16, 2000, except for Note 16, as to which the date is December 7, 2000. MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET September 30, 2000 and 1999 ----------
ASSETS 2000 1999 ---- ---- Current assets: Cash and cash equivalents $ 29,150,118 $ 31,531,686 Short-term investments 1,321,226 147,114 Accounts receivable, net of allowance for doubtful accounts of $2,467,619 and $2,397,015, respectively 44,818,961 45,949,743 Inventories (Note 3) 16,849,446 16,400,477 Deferred income taxes 977,525 966,019 Other current assets 1,715,514 1,896,322 ---------- ---------- Total current assets 94,832,790 96,891,361 Investments (Note 4) 14,802,809 11,312,730 Property, plant and equipment, net (Note 5) 48,467,246 50,670,747 Deferred income taxes (Note 11) 6,899,048 7,509,257 Other assets 6,951,511 6,130,466 Goodwill, net of accumulated amortization of $7,319,088 and $5,245,992, respectively 48,712,046 53,163,011 ----------- ----------- Total assets $220,665,450 $225,677,572 =========== =========== The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET, continued September 30, 2000 and 1999 ----------
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999 ---- ---- Current liabilities: Long-term debt, current maturities $ 3,478,218 $ 7,604,443 Trade accounts payable 10,075,166 9,798,531 Accrued compensation 8,710,178 10,218,612 Accrued vacation pay 3,955,924 3,983,468 Profit distribution to employees 4,063,092 3,925,566 Accrued income taxes 270,124 818,324 Customer prepayments 5,874,352 6,825,149 Postretirement benefits, current portion 781,197 790,809 Other current liabilities 9,623,891 16,722,175 ---------- ---------- Total current liabilities 46,832,142 60,687,077 Long-term debt (Note 6) 13,908,448 14,144,038 Estimated finishing costs 4,071,884 4,059,837 Postretirement benefits other than pensions (Note 10) 18,991,385 19,513,936 Other liabilities 10,005,882 12,650,753 Commitments and contingent liabilities (Note 12) Shareholders' equity (Notes 2, 7 and 8): Common stock: Class A, $1.00 par value, authorized 70,000,000 shares, 15,033,485 and 14,777,391 shares issued at September 30, 2000 and 1999, respectively 15,033,485 14,777,391 Class B, $1.00 par value, authorized 30,000,000 shares, 3,133,511 and 3,389,605 shares issued at September 30, 2000 and 1999, respectively 3,133,511 3,389,605 Preferred stock, $100 par value, authorized 10,000 shares, none issued - - Retained earnings 174,689,060 152,098,622 Accumulated other comprehensive income (loss) (9,177,176) (3,970,000) Notes receivable (6,596) (54,800) Treasury stock, 2,663,117 and 2,507,232 shares at September 30, 2000 and 1999, respectively, at cost (56,816,575) (51,618,887) ----------- ----------- Total shareholders' equity 126,855,709 114,621,931 ----------- ----------- Total liabilities and shareholders' equity $220,665,450 $225,677,572 =========== =========== The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME for the years ended September 30, 2000, 1999 and 1998 ----------
2000 1999 1998 ---- ---- ---- Sales $262,364,902 $239,329,223 $211,622,057 Cost of goods sold 144,276,094 136,292,528 118,571,835 ----------- ----------- ----------- Gross profit 118,088,808 103,036,695 93,050,222 Selling expense 42,923,270 36,877,151 33,646,395 Administrative expense 27,389,486 25,211,553 23,474,883 ----------- ----------- ----------- Operating profit 47,776,052 40,947,991 35,928,944 Investment income 1,827,884 1,788,135 2,511,552 Interest expense (1,487,883) (867,400) (466,304) Other income (deductions), net 125,437 (569,992) (380,860) Minority interest (2,303,140) (22,075) (461,049) ----------- ----------- ----------- Income before income taxes 45,938,350 41,276,659 37,132,283 Income taxes (Note 11) 18,015,431 16,260,957 14,630,591 ----------- ----------- ----------- Net income $ 27,922,919 $ 25,015,702 $ 22,501,692 =========== =========== =========== Earnings per share (Notes 2 and 9): Basic $ 1.80 $ 1.58 $ 1.38 ==== ==== ==== Diluted $ 1.76 $ 1.54 $ 1.34 ==== ==== ==== The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY for the years ended September 30, 2000, 1999 and 1998 - ----------
Accumulated Other Common Additional Comprehensive Notes Stock Paid-in Retained Income (Loss) Receivable Treasury (Note 7) Capital Earnings (net of tax) (Note 7) Stock Total ---------- ---------- ----------- ------------- ---------- ----------- ---------- Balance, September 30, 1997 $ 9,083,498 $ 6,688,414 $115,179,462 $(3,434,370) $ (912,060) $(22,438,869) $104,166,075 Net income - - 22,501,692 - - - 22,501,692 Unrealized gains (losses) - - - 273,095 - - 273,095 Minimum pension liability - - - (134,087) - - (134,087) Translation adjustment - - - (1,094,706) - - (1,094,706) Total comprehensive income 21,545,994 Treasury stock transactions: Purchase of 1,034,384 shares - - - - - (23,069,770) (23,069,770) Issuance of 304,366 shares under stock plans - (1,144,117) (287,282) - - 5,433,459 4,002,060 Stock split, two-for-one 9,083,498 (5,544,297) (3,539,201) - - - - Dividends, $.1725 per share - - (2,793,034) - - - (2,793,034) Payments on notes receivable - - - - 458,971 - 458,971 ---------- ---------- ----------- --------- --------- ---------- ----------- Balance, September 30, 1998 18,166,996 - 131,061,637 (4,390,068) (453,089) (40,075,180) 104,310,296 Net income - - 25,015,702 - - - 25,015,702 Unrealized gains (losses) - - - (204,977) - - (204,977) Minimum pension liability - - - 278,315 - - 278,315 Translation adjustment - - - 346,730 - - 346,730 Total comprehensive income 25,435,770 Treasury stock transactions: Purchase of 543,384 shares - - - - - (15,723,226) (15,723,226) Issuance of 192,736 shares under stock plans - - (1,101,157) - - 4,179,519 3,078,362 Dividends, $.1825 per share - - (2,877,560) - - - (2,877,560) Payments on notes receivable - - - - 398,289 - 398,289 ---------- ---------- ----------- --------- --------- ---------- ----------- Balance, September 30, 1999 $18,166,996 $ - $152,098,622 $(3,970,000) $ (54,800) $(51,618,887) $114,621,931 Net income - - 27,922,919 - - - 27,922,919 Unrealized gains (losses) - - - 35,649 - - 35,649 Minimum pension liability - - - (726,918) - - (726,918) Translation adjustment - - - (4,515,907) - - (4,515,907) Total comprehensive income 22,715,743 Treasury stock transactions: Purchase of 509,246 shares - - - - - (13,224,865) (13,224,865) Issuance of 353,361 shares under stock plans - - (2,354,397) - - 8,027,177 5,672,780 Dividends, $.1925 per share - - (2,978,084) - - - (2,978,084) Payments on notes receivable - - - - 48,204 - 48,204 ---------- ---------- ----------- --------- --------- ---------- ----------- Balance, September 30, 2000 $18,166,996 $ - $174,689,060 $(9,177,176) $ (6,596) $(56,816,575) $126,855,709 ========== ========== =========== ========= ========= ========== =========== The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS for the years ended September 30, 2000, 1999 and 1998 ----------
2000 1999 1998 ---- ---- ---- Cash flows from operating activities: Net income $27,922,919 $25,015,702 $22,501,692 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 12,007,360 10,609,368 8,033,101 Change in deferred taxes 1,040,663 616,479 (2,201,507) Changes in working capital items (Note 13) (2,917,399) (8,923,444) 5,742,946 (Increase) decrease in other assets (971,529) (110,070) 381,243 Increase in estimated finishing costs 12,047 228,163 522,576 Increase (decrease) in other liabilities (594,644) (1,105,873) 72,462 Decrease in postretirement benefits (532,163) (526,939) (471,523) Tax benefit on exercised stock options 2,370,000 1,400,000 1,452,981 (Gain) loss on dispositions of assets 569,717 143,345 (55,818) Net (gain) loss on investments 112,801 (94,744) 60,657 Effect of exchange rate changes on operations (1,053,617) 522,515 197,107 ---------- ---------- ---------- Net cash provided by operating activities 37,966,155 27,774,502 36,235,917 ---------- ---------- ---------- Cash flows from investing activities: Capital expenditures (7,674,088) (13,282,403) (7,332,691) Proceeds from dispositions of assets 366,488 200,987 549,731 Acquisitions, net of cash acquired (12,244,568) (10,797,675) (16,221,247) Purchases of investment securities (6,967,213) (787,785) (1,773,193) Proceeds from dispositions of investments 2,052,745 6,316,700 18,576,625 Payments on notes receivable 48,204 398,289 458,971 ---------- ---------- ---------- Net cash used in investing activities (24,418,432) (17,951,887) (5,741,804) ---------- ---------- ---------- Cash flows from financing activities: Proceeds from long-term debt 3,943,368 14,950,926 - Payments on long-term debt (5,401,462) (1,602,541) (1,190,620) Proceeds from the sale of treasury stock 3,302,780 1,678,362 2,549,079 Purchases of treasury stock (13,224,865) (15,723,226) (23,069,770) Dividends (2,978,084) (2,877,560) (2,793,034) ---------- ---------- ---------- Net cash used in financing activities (14,358,263) (3,574,039) (24,504,345) ---------- ---------- ---------- Effect of exchange rate changes on cash (1,571,028) (86,724) (578,646) ---------- ---------- ---------- Net change in cash and cash equivalents (2,381,568) 6,161,852 5,411,122 Cash and cash equivalents at beginning of year 31,531,686 25,369,834 19,958,712 ---------- ---------- ---------- Cash and cash equivalents at end of year $29,150,118 $31,531,686 $25,369,834 ========== ========== ========== Cash paid during the year for: Interest $ 1,487,883 $ 867,400 $ 466,304 Income taxes 15,617,719 17,446,574 14,436,012 The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 1. NATURE OF OPERATIONS: Matthews International Corporation ("Matthews"), founded in 1850 and incorporated in Pennsylvania in 1902, is a designer, manufacturer and marketer principally of custom-made products which are used to identify people, places, products and events. The Company's products and operations are comprised of three business segments: Bronze, Graphics Imaging and Marking Products. The Bronze segment is a leading manufacturer of cast bronze memorials and other memorialization products, crematories and cremation-related products and is a leading builder of mausoleums in the United States. The Graphics Imaging segment manufactures and provides printing plates, pre-press services and imaging systems for the corrugated and flexible packaging industries. The Marking Products segment designs, manufactures and distributes a wide range of equipment and consumables for identifying various consumer and industrial products, components and packaging containers. The Company has manufacturing and marketing facilities in the United States, Australia, Canada and Europe. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation: The consolidated financial statements include all majority-owned foreign and domestic subsidiaries. The consolidated financial statements also include the accounts of the Company's 50%-owned affiliates, Tukaiz Communications, L.L.C. ("Tukaiz"), O.N.E. Color Communications, L.L.C. ("O.N.E.") and, effective April 1, 1999, S+T GmbH & Co. KG ("S+T"). All intercompany accounts and transactions have been eliminated. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ---------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued: Stock Split: In 1998, the Board of Directors declared a two-for-one stock split on the Company's Class A and Class B Common Stock in the form of a 100% stock distribution. Shareholders' equity was adjusted for the stock split by reclassifying from additional paid-in capital and retained earnings to common stock the par value of the additional shares arising from the split. All per share amounts and numbers of shares in this report reflect the stock split. Foreign Currency: Balance sheet accounts for foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at the consolidated balance sheet date. Gains or losses that result from this process are recorded in other comprehensive income. The cumulative translation adjustment at September 30, 2000 and 1999 was a reduction in accumulated other comprehensive income of $8,412,467 and $3,896,560, respectively. The revenue and expense accounts of foreign subsidiaries are translated into U.S. dollars at the average exchange rates that prevailed during the period. Cash and Cash Equivalents: For purposes of the consolidated statement of cash flows, the Company considers all investments purchased with a remaining maturity of three months or less to be cash equivalents. The carrying amount of cash and cash equivalents approximates fair value due to the short-term maturities of these instruments. At September 30, 2000, a significant portion of the Company's cash and cash equivalents was invested with two financial institutions. Inventories: Inventories are stated at the lower of cost or market with cost generally determined under the average cost method. Property, Plant and Equipment: Property, plant and equipment are carried at cost. Depreciation is computed primarily on the straight-line method over the estimated useful lives of the assets, which generally range from 10 to 45 years for buildings and 3 to 12 years for machinery and equipment. Gains or losses from the disposition of assets are generally included in other income or other deductions from income. The cost of maintenance and repairs is charged against income as incurred. Renewals and betterments of a nature considered to extend the useful lives of the assets are capitalized. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ---------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued: Goodwill: Goodwill, which represents the excess of cost over the estimated fair value of net assets of acquired businesses, is amortized using the straight-line method over periods ranging from 10 to 25 years. Management periodically evaluates the net realizable value of goodwill and, based on such analysis, goodwill will be reduced if considered necessary. Estimated Finishing Costs: Estimated costs for finishing have been provided for bronze memorials, vases and granite bases which have been manufactured, sold to customers and placed in storage for future delivery. Treasury Stock: Treasury stock is carried at cost. The cost of treasury shares sold is determined under the average cost method. At September 30, 2000, treasury stock consisted of 1,527,645 shares of Class A Common Stock and 1,135,472 shares of Class B Common Stock. At September 30, 1999, treasury stock consisted of 1,536,864 shares of Class A Common Stock and 970,368 shares of Class B Common Stock. Income Taxes: Deferred tax assets and liabilities are provided for the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. Deferred income taxes for U.S. tax purposes have not been provided on the undistributed earnings of foreign subsidiaries, as such earnings are considered to be reinvested indefinitely. At September 30, 2000, undistributed earnings for which deferred U.S. income taxes have not been provided approximated $4,900,000. Determination of the amount of unrecognized U.S. deferred tax liability on these unremitted earnings is not practical as any taxes paid upon distribution to the Company would be offset, at least in part, by foreign tax credits under U.S. tax regulations. Research and Development Expenses: Research and development costs are expensed as incurred and approximated $1,900,000, $2,000,000 and $1,700,000 for the years ended September 30, 2000, 1999 and 1998, respectively. Earnings Per Share: Basic earnings per share is computed by dividing net income by the average number of common shares outstanding. Diluted earnings per share is computed using the treasury stock method which assumes the issuance of common stock for all dilutive securities. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ---------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued: Revenue Recognition: Revenues are generally recognized at the time of product shipment, except for construction revenues which are recognized under the percentage-of-completion method of accounting. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements. SAB No. 101 outlines basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. The Company will be required to implement SAB No. 101 in the fourth quarter of its fiscal year ending September 30, 2001. The provisions of SAB No. 101 are not expected to have a material impact on the Company's consolidated financial statements. Reclassifications: Certain amounts in the 1999 and 1998 consolidated financial statements have been reclassified to conform to current year presentation. 3. INVENTORIES: Inventories at September 30 consisted of the following: 2000 1999 ---- ---- Materials and finished goods $14,927,664 $14,883,879 Labor and overhead in process 1,498,130 1,212,485 Supplies 423,652 304,113 ---------- ---------- $16,849,446 $16,400,477 ========== ========== 4. INVESTMENTS: Investment securities are recorded at estimated market value at the consolidated balance sheet date and are classified as available-for-sale. Short-term investments consisted principally of corporate obligations with purchased maturities of over three months but less than one year. The cost of short-term investments approximated market value at September 30, 2000 and 1999. Investments classified as non-current consisted of securities of the U.S. government and its agencies and corporate obligations with purchased maturities in the range of one to five years. Accrued interest on all investment securities was classified with short-term investments. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ---------- 4. INVESTMENTS, continued: Unrealized gains and losses on investment securities, including related deferred taxes, are reflected in other comprehensive income. Realized gains and losses are based on the specific identification method and are recorded in investment income. Realized losses for fiscal 2000 were $29,505. Realized gains for fiscal 1999 and 1998 were $17,325 and $39,716, respectively. Bond premiums and discounts are amortized on the straight-line method, which does not significantly differ from the interest method. At September 30, 2000 and 1999, investments classified as non-current were as follows: Book Value Gross Gross (Amortized Unrealized Unrealized Market Cost) Gains Losses Value ---------- ---------- ---------- --------- September 30, 2000: - ------------------ U.S. government and its agencies $ 7,194,946 $ 43,915 $ 27,731 $ 7,211,130 Corporate obligations 5,013,057 32,176 12,253 5,032,980 Other 159,470 - - 159,470 ---------- ------- ------- ---------- Total $12,367,473 $ 76,091 $ 39,984 $12,403,580 ========== ======= ======= ========== September 30, 1999: - ------------------ U.S. government and its agencies $ 4,598,047 $ 15,859 $ 16,560 $ 4,597,346 Corporate obligations 3,998,133 - 21,633 3,976,500 Other 173,939 - - 173,939 ---------- ------- ------- ---------- Total $ 8,770,119 $ 15,859 $ 38,193 $ 8,747,785 ========== ======= ======= ========== Investments also included the Company's 49% ownership interest in Applied Technology Developments, Ltd. ("ATD"), which was $1,735,258 and $2,035,001 at September 30, 2000 and 1999, respectively. The investment in ATD is recorded under the equity method of accounting. Income under the equity method of accounting is recorded in investment income. In addition, investments included ownership interests in various affiliates of less than 20%, which totaled $663,971 and $529,944 at September 30, 2000 and 1999, respectively. Investments with ownership interests less than 20% are recorded under the cost method of accounting. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ---------- 5. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment and the related accumulated depreciation at September 30, 2000 and 1999 were as follows: 2000 1999 ---- ---- Buildings $25,380,612 $24,387,333 Machinery and equipment 65,161,678 59,242,710 ---------- ---------- 90,542,290 83,630,043 Less accumulated depreciation (45,640,252) (39,107,236) ---------- ---------- 44,902,038 44,522,807 Land 2,946,592 3,019,778 Construction in progress 618,616 3,128,162 ---------- ---------- $48,467,246 $50,670,747 ========== ========== 6. LONG-TERM DEBT: Long-term debt at September 30, 2000 and 1999 consisted of the following: 2000 1999 ---- ---- Note payable to bank, 4.145% $ 8,432,733 $10,966,546 Note payable to bank, 5.5% 3,542,463 - Note payable to bank, 6.7% 3,142,857 3,714,286 Capital lease obligations 790,022 1,482,334 ---------- ---------- 15,908,075 16,163,166 Less current maturities (1,999,627) (2,019,128) ---------- ---------- $13,908,448 $14,144,038 ========== ========== In June 1999, a portion of the purchase price of Caggiati S.p.A. was financed through a loan of Lit. 20.2 billion (U.S.$10,900,000) from an Italian bank, UniCredito Italiano, Parma, Italy. The loan amortization period is 15 years with interest at an annual rate of 4.145%, subject to renewal after five and ten years at an interest rate approximating current market rates. In June 2000, the first deferred payment due in connection with the purchase of Caggiati S.p.A. (Note 15) was financed through a loan of Lit. 7.9 billion (U.S.$3,600,000) from UniCredito Italiano. The loan amortization period is 14 years with interest at an annual rate of 5.5%, subject to renewal after five and ten years at an interest rate approximating current market rates. In 1999, Tukaiz entered into a note payable with a bank for an original amount of $4,000,000. The note, which bears interest at an annual rate of 6.7%, matures in March 2002 and is collateralized by assets of Tukaiz. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ---------- 6. LONG-TERM DEBT, continued: Aggregate maturities of the loans payable to banks for the next five fiscal years are as follows: 2001 $1,442,328 2002 3,442,325 2003 870,898 2004 870,898 2005 870,898 --------- $7,497,347 ========= The carrying amounts of the Company's borrowings under its financing arrangements approximate their fair value. In connection with the acquisition of Caggiati S.p.A. (Note 15), the Company assumed bank debt of $5,500,000. Long-term debt, current maturities, also included short-term borrowings of $1,478,591 and $5,585,315 at September 30, 2000 and 1999, respectively. Short-term borrowings consisted principally of several line of credit arrangements by Caggiati S.p.A. for working capital requirements. The weighted-average interest rate on these borrowings, which are secured by certain trade accounts receivable, was 5.0% at September 30, 2000. Short-term borrowings at September 30, 1999 also included $365,000 by Tukaiz under a line of credit. Tukaiz has a line of credit of $1,500,000, which bears interest at the bank's prime rate, which was 9.5% at September 30, 2000. No amounts were outstanding under this line of credit at September 30, 2000. The Company's capital lease agreements expire within three years and generally provide for renewal or purchase options. Remaining future minimum lease payments under capital leases are as follows: 2001 $ 610,458 2002 275,233 2003 13,663 -------- 899,354 Less amount representing interest (109,332) -------- $ 790,022 ======== Assets under capital lease agreements are amortized by the straight-line method over the estimated useful lives of the assets. Cost and accumulated amortization of assets under capital lease agreements were $2,969,280 and $2,609,287, respectively, at September 30, 2000 and $2,976,310 and $2,226,925, respectively, at September 30, 1999. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ---------- 6. LONG-TERM DEBT, continued: The Company has a Revolving Credit and Term Loan Agreement. Under terms of the agreement, the Company may borrow principal amounts up to $10,000,000 in the aggregate at various interest rate options approximating current market rates. The Revolving Credit and Term Loan Agreement requires the Company to maintain minimum levels of consolidated working capital and tangible net worth. At September 30, 2000 and 1999, no amounts were outstanding under this agreement. The Company has a line of credit of $500,000 (Canadian dollars), which provides for borrowings at the bank's prime interest rate. The Company has a $500,000 (U.S.) foreign exchange line of credit for standby letters of credit to support performance guarantees. There were no borrowings outstanding on these lines of credit at September 30, 2000 and 1999. 7. SHAREHOLDERS' EQUITY: The authorized common stock of the Company consists of 100,000,000 shares, divided into two classes: Class A Common Stock, 70,000,000 shares, $1 par value, and Class B Common Stock, 30,000,000 shares, $1 par value. Shares of Class A Common Stock have one vote per share and are freely transferable subject to applicable securities laws. Shares of Class B Common Stock have ten votes per share and are only transferable by a shareholder to the Company or to an active employee of the Company. The Company may, at its discretion, purchase such shares at the fair market value per share of the Company's Class A Common Stock or permit shareholders to tender such shares to the Company in exchange for an equal number of shares of Class A Common Stock. For the fiscal years ended September 30, 2000, 1999 and 1998, 256,094, 362,447 and 645,226 shares, respectively, of Class B Common Stock were exchanged for an equal number of shares of Class A Common Stock. The Company has an active stock repurchase program, which was initiated in fiscal 1996. The program was extended for the third time by the Company in April 2000. Under the program, the Company's Board of Directors have authorized the repurchase of a total of 4,000,000 shares of Matthews Class A and Class B Common Stock, of which 3,164,138 shares have been repurchased as of September 30, 2000. The buy-back program is designed to increase shareholder value, enlarge the Company's holdings of its Class A and Class B Common Stock, and add to earnings per share. Repurchased shares may be retained in treasury, utilized for acquisitions, or reissued to employees or other purchasers, subject to the restrictions of the Company's Restated Articles of Incorporation. Shareholders' equity includes notes receivable from employees which resulted from purchases of common stock by designated employees under the Employees' Stock Purchase Plan. Each note bears interest at 6.5% per annum and is due five years from the date of its execution, which period may be, and in some instances has been, extended by the Executive Committee. There were 27,000 shares of the Company's Class B Common Stock owned by borrowers and pledged as collateral on the notes as of September 30, 2000. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ---------- 7. SHAREHOLDERS' EQUITY: Comprehensive income consists of net income adjusted for changes, net of any related income tax effect, in cumulative foreign currency translation, unrealized investment gains and losses and minimum pension liability. 8. STOCK PLANS: The Company has a stock incentive plan which provides for grants of incentive stock options, nonstatutory stock options and restricted share awards. The plan is administered by the Compensation Committee of the Board of Directors. The aggregate number of shares of the Company's common stock which may be issued upon exercise of the stock options and pursuant to the restricted share awards was 2,325,582 shares at September 30, 2000. The option price for each stock option which may be granted under the plan may not be less than the fair market value of the Company's common stock on the date of grant. Outstanding stock options are exercisable in various share amounts based on the attainment of certain market value levels of Class A Common Stock but, in the absence of such events, are exercisable in full for a one-week period beginning five years from the date of grant. In addition, options granted after September 1996 vest in one-third increments after three, four and five years, respectively, from the grant date (but, in any event, not until the attainment of the certain market value levels described above). The options expire on the earlier of ten years from the date of grant, upon employment termination, or within specified time limits following voluntary employment termination (with the consent of the Company), retirement or death. The Company has elected to account for its stock incentive plan under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." If compensation cost had been determined under SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income and diluted earnings per share would have been as follows: 2000 1999 1998 ---- ---- ---- Net income, as reported $27,922,919 $25,015,702 $22,501,692 Net income, pro forma 26,357,128 23,851,524 21,967,279 Earnings per share, as reported $1.76 $1.54 $1.34 Earnings per share, pro forma 1.66 1.47 1.31 The weighted-average fair value of options granted was $10.74 per share in 2000, $11.61 per share in 1999 and $7.69 per share in 1998. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ---------- 8. STOCK PLANS, continued: The fair value of each option grant is estimated on the date of grant using a Black-Scholes based pricing model with the following assumptions: 2000 1999 1998 ---- ---- ---- Expected volatility 26.0% 24.8% 23.1% Dividend yield 0.8% 0.8% 0.7% Average risk-free interest rate 5.8% 6.3% 4.8% Average expected term (years) 8.3 8.0 7.7 The transactions for shares under options were as follows: 2000 1999 1998 ---- ---- ---- Outstanding, beginning of year: Number 1,949,350 1,482,650 1,593,766 Weighted-average exercise price $18.67 $13.20 $11.12 Granted: Number 111,550 699,800 226,500 Weighted-average exercise price $25.69 $27.93 $21.54 Exercised: Number 350,501 192,300 304,366 Weighted-average exercise price $ 9.27 $ 8.82 $ 8.38 Expired or forfeited: Number 11,466 40,800 33,250 Weighted-average exercise price $21.81 $25.06 $14.06 Outstanding, end of year: Number 1,698,933 1,949,350 1,482,650 Weighted-average exercise price $21.05 $18.67 $13.20 Exercisable, end of year: Number 292,627 430,000 622,300 Weighted-average exercise price $12.95 $ 9.35 $ 9.18 Shares reserved for future options, end of year 626,649 399,615 151,314 The following tables summarize certain stock option information at September 30, 2000: Options outstanding: - ------------------- Range of Weighted-average Weighted-average exercise price Number remaining life exercise price - -------------- -------- ---------------- ---------------- $7.13 and $13.00 85,000 4.8 $ 9.96 $14.06 - $17.38 622,883 6.2 14.18 $21.41 206,500 7.2 21.41 $27.69 - $30.69 675,500 8.4 27.94 $25.69 109,050 9.1 25.69 --------- --- ----- 1,698,933 7.3 $21.05 ========= === ===== NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ---------- 8. STOCK PLANS, continued: Options exercisable: - ------------------- Range of Weighted-average exercise price Number exercise price - -------------- ------- ---------------- $7.13 and $13.00 85,000 $ 9.96 $14.06 - $17.38 207,627 14.18 ------- ----- 292,627 $12.95 ======= ===== Under the Company's Director Fee Plan, directors who are not also officers of the Company each receive, as an annual retainer fee, shares of the Company's Class A Common Stock equivalent to approximately $16,000. Directors may also elect to receive the common stock equivalent of meeting fees. Each director may elect to be paid these shares on a current basis or have such shares credited to a deferred stock account as phantom stock, with such shares to be paid to the director subsequent to leaving the Board. The value of deferred shares is recorded in other liabilities. Shares deferred under the Director Fee Plan at September 30, 2000, 1999 and 1998 were 24,007, 23,072 and 20,658, respectively. 9. EARNINGS PER SHARE 2000 1999 1998 ---- ---- ---- Net income $27,922,919 $25,015,702 $22,501,692 ========== ========== ========== Weighted-average common shares outstanding 15,515,508 15,851,393 16,336,359 Dilutive securities, primarily stock options 336,069 389,760 433,855 ---------- ---------- ---------- Diluted weighted-average common shares outstanding 15,851,577 16,241,153 16,770,214 ========== ========== ========== Basic earnings per share $1.80 $1.58 $1.38 ==== ==== ==== Diluted earnings per share $1.76 $1.54 $1.34 ==== ==== ==== NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ---------- 10. PENSION AND OTHER POSTRETIREMENT PLANS: The Company provides defined benefit pension and other postretirement plans to certain employees. The following provides a reconciliation of benefit obligations, plan assets and funded status of the plans:
Pension Other Postretirement ------------------------ ------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Change in benefit obligation: Benefit obligation, beginning $ 55,959,448 $54,747,545 $ 12,563,366 $ 12,069,729 Service cost 2,452,406 2,161,278 268,247 321,533 Interest cost 3,954,490 3,724,617 882,177 816,476 Assumption changes - (1,961,143) - (367,573) Actuarial (gain) loss 693,879 (51,860) 200,431 474,566 Benefit payments (2,826,557) (2,660,989) (931,337) (751,365) ---------- ---------- ---------- ---------- Benefit obligation, ending 60,233,666 55,959,448 12,982,884 12,563,366 ---------- ---------- ---------- ---------- Change in plan assets: Fair value, beginning 69,656,767 59,314,028 - - Actual return 31,049,431 12,775,502 - - Benefit payments (2,826,557) (2,660,989) (931,337) (751,365) Employer contributions 228,226 228,226 931,337 751,365 ---------- ---------- ---------- ---------- Fair value, ending 98,107,867 69,656,767 - - ---------- ---------- ---------- ---------- Funded status 37,874,201 13,697,319 (12,982,884) (12,563,366) Unrecognized transition asset - (403,800) - - Unrecognized actuarial (gain) loss (36,403,625) (12,578,346) 2,968,871 3,026,261 Unrecognized prior service cost 736,266 898,163 (9,758,569) (10,767,640) ---------- ---------- ---------- ---------- Net amount recognized $ 2,206,842 $ 1,613,336 $(19,772,582) $(20,304,745) ========== ========== ========== ========== Amounts recognized in the balance sheet: Prepaid pension cost $ 4,210,308 $ 3,471,504 $(19,772,582) $(20,304,745) Accrued benefit liability (3,537,024) (2,263,582) - - Intangible asset 243,828 307,353 - - Accumulated other comprehensive income 1,289,730 98,061 - - ---------- ---------- ---------- ---------- Net amount recognized $ 2,206,842 $ 1,613,336 $(19,772,582) $(20,304,745) ========== ========== ========== ==========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ---------- 10. PENSION AND OTHER POSTRETIREMENT PLANS, continued: Net periodic pension and other postretirement benefit costs included the following:
Pension Other Postretirement ---------------------------------- ---------------------------------- 2000 1999 1998 2000 1999 1998 ---------- ---------- ---------- ---------- ---------- ---------- Service cost $2,452,406 $2,161,278 $1,923,321 $ 268,247 $ 321,533 $ 277,803 Interest cost 3,954,490 3,724,617 3,559,391 882,177 816,476 748,625 Expected return on plan assets (6,100,211) (5,288,217) (4,748,334) - - - Amortization: Transition asset (403,800) (403,794) (403,794) - - - Prior service cost 161,897 161,927 161,927 (1,009,071) (1,009,071) (1,009,071) Net actuarial (gain) loss (430,062) 54,262 45,209 136,752 112,254 55,476 --------- --------- --------- --------- --------- --------- Net benefit cost $ (365,280) $ 410,073 $ 537,720 $ 278,105 $ 241,192 $ 72,833 ========= ========= ========= ========= ========= =========
The Company has an unfunded defined benefit pension plan which had a benefit obligation at September 30, 2000 and 1999 of $4,486,914 and $2,556,500, respectively. Weighted-average assumptions for the pension and other postretirement benefit plans as of August 1 and September 30, respectively, were:
Pension Other Postretirement ---------------------------- ---------------------------- 2000 1999 1998 2000 1999 1998 -------- -------- -------- -------- -------- -------- Discount rate 7.25% 7.25% 7.00% 7.25% 7.25% 7.00% Return on plan assets 9.00 9.00 9.50 - - - Compensation increase 4.50 4.50 4.50 4.50 4.50 4.50
For measurement purposes, annual rates of increase of 20.0% and 12.0% in the per capita cost of health care benefits for Medicare-Risk HMO Plans and all other plans, respectively, were assumed for 2000; the rates were assumed to decrease gradually to 5.0% for 2004 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported. An increase in the assumed health care cost trend rates by one percentage point would have increased the accumulated postretirement benefit obligation as of September 30, 2000 by $428,000 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by $60,000. A decrease in the assumed health care cost trend rates by one percentage point would have decreased the accumulated postretirement benefit obligation as of September 30, 2000 by $391,000 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by $52,000. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ---------- 11. INCOME TAXES: The provision for income taxes consisted of the following: 2000 1999 1998 ---- ---- ---- Current: Federal $11,940,282 $12,116,079 $13,190,560 State 1,842,603 2,400,713 2,326,985 Foreign 2,761,313 1,117,029 685,204 ---------- ---------- ---------- 16,544,198 15,633,821 16,202,749 Deferred 1,471,233 627,136 (1,572,158) ---------- ---------- ---------- Total $18,015,431 $16,260,957 $14,630,591 ========== ========== ========== The components of the net deferred tax asset at September 30 were as follows: 2000 1999 ---- ---- Deferred tax assets: Postretirement benefits other than pensions $ 7,686,796 $ 7,894,340 Deferred compensation 1,389,145 1,833,435 Bad debt / other provisions 997,702 1,109,910 Estimated finishing costs 1,104,921 1,073,663 Accrued vacation pay 872,698 857,539 Foreign subsidiary losses, net - 170,000 Other 311,564 443,142 ---------- ---------- 12,362,826 13,382,029 ---------- ---------- Deferred tax liabilities: Depreciation and amortization (3,778,472) (3,957,835) Deferred gain on sale of facilities (476,935) (508,713) Pension costs (216,765) (448,915) Unrealized investment (gain) loss (14,081) 8,710 ---------- ---------- (4,486,253) (4,906,753) ---------- ---------- Net deferred tax asset 7,876,573 8,475,276 Less current portion (977,525) (966,019) ---------- ---------- $ 6,899,048 $ 7,509,257 ========== ========== NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ---------- 11. INCOME TAXES, continued: The components of the provision for deferred income taxes were as follows: 2000 1999 1998 ---- ---- ---- Postretirement benefits other than pensions $ 207,544 $ 230,018 $ 183,894 Deferred compensation 444,290 (378,345) (858,000) Estimated finishing costs (31,258) 10,900 (276,930) Accrued vacation pay (15,159) (23,759) (62,410) Foreign subsidiary losses, net 170,000 205,000 125,000 Depreciation and amortization 272,464 666,701 (40,935) Deferred gain on sale of facilities (31,778) 1,538 (77,214) Pension costs 232,601 13,122 (208,149) Other 222,529 (98,039) (357,414) ---------- ---------- ---------- $ 1,471,233 $ 627,136 $(1,572,158) ========== ========== ========== The reconciliation of the federal statutory tax rate to the consolidated effective tax rate was as follows: 2000 1999 1998 ---- ---- ---- Federal statutory tax rate 35.0 % 35.0 % 35.0 % Effect of state income taxes, net of federal deduction 2.8 3.8 3.7 Foreign taxes in excess of (less than) federal statutory rate .5 ( .6) - Goodwill amortization .5 .5 .6 Other .4 .7 .1 ---- ---- ---- Effective tax rate 39.2 % 39.4 % 39.4 % ==== ==== ==== The Company's foreign subsidiaries had income before income taxes for the years ended September 30, 2000, 1999 and 1998 of approximately $7,000,000, $4,300,000 and $1,500,000, respectively. At September 30, 2000 and 1999, the Company had foreign net operating loss carryforwards of $900,000 and $3,500,000, respectively. Carryforwards at September 30, 2000 have an indefinite carryforward period. The Company has recorded a valuation allowance of $430,000 and $1,350,000 at September 30, 2000 and 1999, respectively, related to the carryforwards. 12. COMMITMENTS AND CONTINGENT LIABILITIES: The Company operates various production and office facilities and equipment under operating lease agreements. Annual rentals under these and other operating leases were $3,700,000, $3,100,000 and $2,800,000 in 2000, 1999 and 1998, respectively. Future minimum rental commitments are not material. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ---------- 12. COMMITMENTS AND CONTINGENT LIABILITIES, continued: The Company is party to various legal proceedings, the eventual outcome of which are not predictable. It is possible that an unfavorable resolution of these matters could have a material impact to the Company. Although the ultimate disposition of these proceedings is not presently determinable, management is of the opinion that they should not result in liabilities in an amount which would materially affect the Company's consolidated financial position, results of operations or cash flows. The Company has employment agreements with certain employees, the terms of which expire at various dates between 2001 and 2008. The agreements generally provide for base salary and bonus levels and include a non-compete clause. The aggregate commitment for salaries under these agreements at September 30, 2000 was approximately $2,900,000. 13. SUPPLEMENTAL CASH FLOW INFORMATION: Changes in working capital items as presented in the Consolidated Statement of Cash Flows consisted of the following: 2000 1999 1998 ---- ---- ---- Current assets: Accounts receivable $ 1,602,469 $(1,977,766) $(1,051,982) Inventories (574,012) 1,126,300 (355,121) Other current assets 109,086 28,048 392,197 ---------- ---------- ---------- 1,137,543 (823,418) (1,014,906) ---------- ---------- ---------- Current liabilities: Trade accounts payable 145,448 (2,311,459) 732,701 Accrued compensation (1,508,434) 990,705 3,539,657 Accrued vacation pay (27,544) 84,406 275,473 Profit distribution to employees 137,526 (143,948) 528,549 Accrued income taxes (548,200) (3,155,184) 943,106 Customer prepayments (950,797) (615,939) (1,451,379) Other current liabilities (1,302,941) (2,948,607) 2,189,745 ---------- ---------- ---------- (4,054,942) (8,100,026) 6,757,852 ---------- ---------- ---------- Net change $(2,917,399) $(8,923,444) $ 5,742,946 ========== ========== ========== Significant non-cash transactions included the following: In September 1998, Matthews acquired a fifty percent interest in S+T. A liability was recorded in fiscal 1998 for the purchase price of 11,255,500 German Marks (U.S.$6,200,000), which was paid in January 2000 and included in the Statement of Cash Flows in fiscal 2000. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ---------- 13. SUPPLEMENTAL CASH FLOW INFORMATION, continued: In fiscal 1998, Matthews acquired a 50% interest in O.N.E. The purchase agreement requires Matthews to acquire the remaining 50% interest no later than May 2004. A liability of $3,700,000 was recorded in other liabilities on the acquisition date for the present value of the minimum future payouts under the purchase agreement. 14. SEGMENT INFORMATION: The Company is organized into three business segments based on products and services. The segments, which are Bronze, Graphics Imaging and Marking Products, are described under Nature of Operations (Note 1). Management evaluates segment performance based on operating profit (before income taxes) and does not allocate non-operating items such as investment income, interest expense, other income (deductions), net and minority interest. Information about the Company's segments follows:
Graphics Marking Imaging Products Bronze Other Consolidated ---------- ---------- ---------- ------------ ------------ Sales to external customers: 2000 $90,163,683 $31,840,664 $140,360,555 $ - $262,364,902 1999 85,094,574 30,474,292 123,760,357 - 239,329,223 1998 75,294,549 30,054,688 106,272,820 - 211,622,057 Intersegment sales: 2000 14,372 49,755 199,059 - 263,186 1999 5,515 54,650 45,553 - 105,718 1998 6,973 63,424 35,364 - 105,761 Depreciation and amortization: 2000 5,843,810 531,983 5,198,909 432,658 12,007,360 1999 5,829,134 586,859 3,789,643 403,732 10,609,368 1998 4,202,894 618,861 2,849,786 361,560 8,033,101 Operating profit: 2000 9,639,815 4,720,011 33,416,226 - 47,776,052 1999 5,135,373 4,036,043 31,776,575 - 40,947,991 1998 6,909,985 3,003,056 26,015,903 - 35,928,944 Total assets: 2000 64,186,626 18,449,104 88,193,555 49,836,165 220,665,450 1999 66,925,288 19,685,133 97,005,147 42,062,004 225,677,572 1998 60,274,431 20,060,272 59,304,584 47,566,477 187,205,764 Capital expenditures: 2000 4,226,726 639,536 2,610,455 197,371 7,674,088 1999 7,243,220 497,372 5,390,338 151,473 13,282,403 1998 5,110,111 334,122 1,628,217 260,241 7,332,691
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ---------- 14. SEGMENT INFORMATION, continued: The accounting policies of the segments are the same as those described in Summary of Significant Accounting Policies (Note 2). Intersegment sales are accounted for at negotiated prices. Operating profit is total revenue less operating expenses. Segment assets include those assets which are used in the Company's operations within each segment. Assets classified under Other principally consist of cash and cash equivalents, investments, deferred income taxes and corporate headquarters' assets. Long-lived assets include property, plant and equipment, net of accumulated depreciation, and goodwill, net of accumulated amortization. Information about the Company's operations by geographic area follows:
United States Canada Australia Europe Consolidated ------------- --------- --------- ---------- ------------ Sales to external customers: 2000 $211,990,262 $9,303,128 $ 4,631,263 $36,440,249 $262,364,902 1999 207,727,477 9,463,587 4,581,785 17,556,374 239,329,223 1998 192,443,566 8,808,520 4,817,523 5,552,448 211,622,057 Long-lived assets: 2000 69,426,182 2,401,191 2,403,778 22,948,141 97,179,292 1999 72,540,145 2,557,147 3,133,019 25,603,447 103,833,758 1998 67,653,629 1,974,039 2,894,405 112,988 72,635,061
15. ACQUISITIONS: On August 1, 2000, Matthews purchased a 75% interest in Repro Busek Druckvorstufentechnik GmbH & Co. KG ("Busek"), which is headquartered in Vienna, Austria. Products and services of Busek include pre-press packaging, digital and analog flexographic printing plates, design, art work, lithography and color separation. Busek serves customers in Austria, Hungary, Poland and the Czech Republic. On June 1, 1999, Matthews purchased the assets of Caggiati S.p.A., the leading supplier of bronze memorialization products in Europe. The purchase price was Lit. 34.6 billion (U.S.$19,000,000) cash plus the assumption of bank debt of Lit. 10.2 billion (U.S.$5,500,000) and certain other trade liabilities. Matthews paid cash of Lit. 20.2 billion (U.S.$10,900,000) upon closing with Lit. 7.2 billion (U.S.$3,500,000) paid on June 1, 2000 and the remaining balance of Lit. 7.2 billion payable on June 1, 2001 (classified in other current liabilities). Interest at an annual rate of 5% is payable on the deferred payments. The following unaudited pro forma information presents a summary of the consolidated results of Matthews and Caggiati S.p.A. as if the acquisition had occurred on October 1, 1997: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued ---------- 15. ACQUISITIONS, continued: 1999 1998 ---- ---- Sales $255,000,000 $235,100,000 Net income 25,800,000 23,500,000 Earnings per share, diluted $1.59 $1.40 These unaudited pro forma results have been prepared for comparative purposes only and include certain adjustments, such as goodwill amortization and interest expense on acquisition debt. The pro forma information does not purport to be indicative of the results of operations which actually would have resulted had the acquisition occurred on the date indicated, or which may result in the future. Acquisitions in fiscal 1998 totaled approximately $23,000,000 and included Gibraltar Mausoleum Construction Company, a fifty percent interest in S+T and a fifty percent interest in O.N.E. Matthews has accounted for these acquisitions using the purchase method and, accordingly, recorded the acquired assets and liabilities at their estimated fair values at the acquisition dates. The excess of the purchase price over the fair value of the net assets has been recorded as goodwill to be amortized on a straight-line basis over periods ranging from 20 to 25 years. 16. SUBSEQUENT EVENT: On December 7, 2000, Matthews signed an agreement for the sale of its fifty percent interest in Tukaiz. Net proceeds to Matthews from the sale, after the repayment of intercompany debt, will approximate $10,000,000. The transaction, which is expected to close before January 31, 2001, is contingent on certain factors including the purchaser's ability to complete financing arrangements. All intercompany debt provided by Matthews to Tukaiz, including a $5,500,000 Subordinated Convertible Note, will be repaid upon the closing of this transaction. SUPPLEMENTARY FINANCIAL INFORMATION Selected Quarterly Financial Data (Unaudited): The following table sets forth certain items included in the Company's unaudited consolidated financial statements for each quarter of fiscal 2000 and fiscal 1999.
Quarter Ended -------------------------------------------------- Year Ended December 31 March 31 June 30 September 30 September 30 ----------- ----------- ----------- ------------ ------------ FISCAL YEAR 2000: Sales $63,539,741 $65,979,186 $67,872,139 $64,973,836 $262,364,902 Gross profit 28,023,875 30,640,743 31,098,646 28,325,544 118,088,808 Operating profit 10,385,727 12,508,606 13,330,514 11,551,205 47,776,052 Net income 6,083,277 7,114,526 7,725,357 6,999,759 27,922,919 Earnings per share .38 .45 .49 .44 1.76 FISCAL YEAR 1999: Sales $56,441,488 $58,588,219 $61,405,443 $62,894,073 $239,329,223 Gross profit 23,458,498 25,157,646 25,493,116 28,927,435 103,036,695 Operating profit 8,699,255 10,559,876 11,126,662 10,562,198 40,947,991 Net income 5,415,119 6,425,198 6,888,062 6,287,323 25,015,702 Earnings per share .33 .39 .43 .39 1.54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There have been no changes in accountants or disagreements on accounting or financial disclosure between the Company and PricewaterhouseCoopers LLP, Certified Public Accountants, for the fiscal years ended September 30, 2000, 1999 and 1998. PART III ITEM 10. DIRECTORS, OFFICERS and EXECUTIVE MANAGEMENT OF THE REGISTRANT. The following information as of November 30, 2000 is furnished with respect to directors, officers and executive management: Name Age Positions with Registrant - ---- --- ------------------------- David M. Kelly 58 Chairman of the Board, President and Chief Executive Officer Edward J. Boyle 54 Vice President, Accounting & Finance, Treasurer and Secretary David J. DeCarlo 55 President, Bronze Division and Director Brian J. Dunn 43 President, Marking Products, North America Robert J. Kavanaugh 63 Director Lawrence W. Keeley 39 President, Graphic Systems Division Thomas N. Kennedy 65 Director Steven F. Nicola 40 Controller John P. O'Leary, Jr. 53 Director Robert J. Schwartz 53 Group President, Graphic Systems & Marking Products Divisions William J. Stallkamp 61 Director John D. Turner 54 Director David M. Kelly has been Chairman of the Board since March 1996. He was appointed President and Chief Operating Officer of the Company in April 1995 and President and Chief Executive Officer in October 1995. He was appointed as a Director of the Company in May 1995. Edward J. Boyle has been Vice President, Accounting & Finance since December 1995. He was appointed Treasurer and Secretary in September 1996. David J. DeCarlo, a Director of the Company since 1987, has been President, Bronze Division since November 1993. ITEM 10. DIRECTORS, OFFICERS and EXECUTIVE MANAGEMENT OF THE REGISTRANT, continued. Brian J. Dunn was appointed President, Marking Products, North America in November 2000. He had been National Sales Manager, Marking Products, North America since joining the Company in November 1998. Prior thereto, Mr. Dunn was a regional sales manager for the Automation Division of Rockwell International Corporation. Robert J. Kavanaugh was elected to the Board of Directors in February 1998. Mr. Kavanaugh retired in 1996 as a partner of the Pittsburgh office of Arthur Andersen LLP. Lawrence W. Keeley joined the Company in September 1999 as President, Graphic Systems Division. Prior thereto, he was a Vice President for Container Graphics Corporation. Thomas N. Kennedy, a Director of the Company since 1987, retired as an officer of the Company in December 1995. He was Senior Vice President, Chief Financial Officer and Treasurer. Steven F. Nicola has been Controller of the Company since December 1995. John P. O'Leary, Jr., a Director of the Company since 1992, has been President and Chief Executive Officer of Tuscarora, Incorporated, a plastics manufacturer, since 1990. Robert J. Schwartz was appointed Group President, Graphic Systems & Marking Products Divisions in November 2000. He was President, Marking Products Division since September 1997. Mr. Schwartz joined the Company in January 1997 as Director of Sales and Marketing for the Marking Products Division. Prior thereto, he was Vice President - Sales for Northeast Distributors, Inc. William J. Stallkamp, a Director of the Company since 1981, was a Vice Chairman of Mellon Financial Corporation in Pittsburgh, PA and Chairman of Mellon PSFS in Philadelphia, PA until his retirement on January 1, 2000. He is currently a fund advisor at Safeguard Scientifics, Inc. John D. Turner was elected to the Board of Directors in April 1999. Mr. Turner has been Executive Vice President of The LTV Corporation and President of LTV Copperweld, a manufacturer of tubular and bimetallic wire products, since November 1999. Mr. Turner was formerly President and Chief Executive Officer of Copperweld Corporation. ITEM 10. DIRECTORS, OFFICERS and EXECUTIVE MANAGEMENT OF THE REGISTRANT, continued. Board Committees: The Executive Committee is appointed by the Board of Directors to have and exercise during the periods between Board meetings all of the powers of the Board of Directors, except that the Executive Committee may not elect directors, change the membership of or fill vacancies in the Executive Committee, change the By-Laws of the Company or exercise any authority specifically reserved by the Board. The membership of the Executive Committee from October 1, 1999 until April 20, 2000 consisted of Messrs. Kelly and DeCarlo. The membership of the Committee since April 20, 2000 consisted of Messrs. Kelly, DeCarlo and Kennedy. The principal function of the Audit Committee, the members of which are Messrs. O'Leary (Chairman), Kavanaugh and Stallkamp, is to endeavor to assure the integrity and adequacy of financial statements issued by the Company. It is intended that the Audit Committee will review internal auditing systems and procedures as well as the activities of the public accounting firm performing the external audit. The principal function of the Compensation Committee, the members of which are Messrs. Stallkamp (Chairman), Kavanaugh and Turner, is to review periodically the suitability of the remuneration arrangements (including benefits), other than stock remuneration, for the principal officers of the Company. A subcommittee of the Compensation Committee, the Stock Compensation Committee, the members of which are Messrs. Stallkamp (Chairman), Kavanaugh and Turner, consider and grant stock remuneration and administer the Company's 1992 Stock Incentive Plan. ITEM 11. EXECUTIVE COMPENSATION. The following table sets forth the individual compensation information for the fiscal years ended September 30, 2000, 1999 and 1998 for the Company's Chief Executive Officer and the four most highly compensated executives. SUMMARY COMPENSATION TABLE
Annual Long-Term Compensation Compensation ----------------- ----------------------- Awards Payouts ------ ------- All Securities Other Name of Individual Underlying LTIP Compen- and Principal Position Year Salary Bonus Options Payouts sation - ---------------------- ---- ------- ------- ---------- --------- ------- (1) (Shares) (2) (3) David M. Kelly 2000 $367,117 $360,585 None $736,928 117 Chairman of the Board and 1999 329,618 339,298 275,000 734,737 None Chief Executive Officer 1998 312,409 324,082 40,000 239,850 None David J. DeCarlo 2000 236,095 163,498 None 761,709 1,492 Director and President, 1999 217,411 171,334 149,000 711,607 1,419 Bronze Division 1998 207,921 169,552 None 269,660 2,520 Edward J. Boyle 2000 160,232 94,876 None 190,292 2,142 Vice President, 1999 143,041 89,962 78,000 187,183 3,294 Accounting & Finance 1998 129,689 87,394 36,000 60,211 4,250 Robert J. Schwartz 2000 139,913 85,646 5,000 118,929 3,189 President, Marking 1999 126,577 80,952 10,000 55,464 747 Products Division 1998 118,323 75,177 32,000 None 1,038 Lawrence W. Keeley 2000 156,169 55,402 20,000 None 35,795 President, Graphic Systems Division (1) Includes the current portion of management incentive plan and supplemental management incentive payments and for Mr. Kelly in 1999 and 1998, an amount equal to his life insurance premium cost. Until 2000, at his request, the Company did not provide life insurance for Mr. Kelly, but in lieu thereof paid to him annually the amount which the Company would have paid in premiums to provide coverage, considering his position and age. Such amounts were not included in calculating other Company benefits for Mr. Kelly. The amount paid to Mr. Kelly in lieu of life insurance for 1999 and 1998 was $4,100 each year. The Company has adopted a management incentive plan for officers and key management personnel. Participants in such plan are not eligible for the Company's profit distribution plan. The incentive plan is based on improvement in divisional and Company economic value added and the attainment of established personal goals. A portion of amounts earned are deferred by the Company and are payable with interest at a market rate over a two-year period contingent upon economic value added performance and continued employment during such period. See Long-Term Incentive Plans - Awards in Last Fiscal Year table. In addition, payments include a supplement in amounts which are sufficient to pay annual interest expense on the outstanding notes of management under the Company's Designated Employee Stock Purchase Plan and to pay medical costs which are not otherwise covered by a Company plan. ITEM 11. EXECUTIVE COMPENSATION, continued. (2) Represents payments of deferred amounts under the management incentive plan. (3) Includes premiums for term life insurance and educational assistance for dependent children. Each officer of the Company is provided term life insurance coverage in an amount approximately equivalent to three times his respective salary. Educational assistance for dependent children is provided to any officer or employee of the Company whose child meets the scholastic eligibility criteria and is attending an eligible college or university. Amounts reported in this column include only life insurance benefit costs except for Messrs. Boyle, Schwartz and Keeley. Educational assistance amounts for Mr. Boyle in fiscal 2000, 1999 and 1998, respectively, were $1,200, $2,400 and $2,200. In 2000, Mr. Schwartz received $2,400 under the educational assistance program. The amount reported in this column in 2000 for Mr. Keeley includes $35,592 for the reimbursement of relocation expenses.
The Summary Compensation Table does not include expenses to the Company of incidental benefits of a limited nature to executive officers including use of Company vehicles, club memberships, dues, or tax planning services. The Company believes such incidental benefits are in the conduct of the Company's business, but, to the extent such benefits and use would be considered personal benefits, the value thereof is not reasonably ascertainable and does not exceed, with respect to any individual named in the compensation table, the lesser of $50,000 or 10% of the annual compensation reported in such table. Long-Term Incentive Plans - Awards in Last Fiscal Year
Performance Estimated Future or Other Payouts Under Number Period Non-Stock Price- of Shares Until Based Plans or Other Maturation ---------------- Name Rights or Payout Maximum - ------------- ---------- ----------- ---------------- D.M. Kelly - 2 Years $ 370,982 D.J. DeCarlo - 2 Years 195,084 E.J. Boyle - 2 Years 97,239 R.J. Schwartz - 2 Years 38,004 L.W. Keeley - 2 Years None The Company has a management incentive plan based on improvement in divisional and Company economic value added and the attainment of established personal goals. A portion of amounts earned are deferred by the Company and are payable with interest at a market rate over a two-year period contingent upon economic value added performance and continued employment during such period.
ITEM 11. EXECUTIVE COMPENSATION, continued. Option/SAR Grants in Last Fiscal Year
Potential Realized Value at Assumed Annual Rates of Stock Price Appreciation for Individual Grants (1) Option Term - ----------------------------------------------------------------- ---------------------- Percent of Total Number of Options Securities Granted to Exercise Underlying Employees or Base Options in Fiscal Price Expiration Name Granted Year per Share Date 5% 10% - -------------- ---------- ---------- --------- ---------- -------- -------- D.M. Kelly None - - - - - D.J. DeCarlo None - - - - - E.J. Boyle None - - - - - R.J. Schwartz 5,000 4.5 25.688 10/26/09 80,774 204,696 L.W. Keeley 20,000 17.9 25.688 10/26/09 323,095 818,785 (1) All options were granted at market value as of the date of grant. Options are exercisable in various share amounts based on the attainment of certain market value levels of Class A Common Stock, but, in the absence of such events, are exercisable in full for a one-week period beginning five years from the date of grant. In addition, options vest in one-third increments after three, four and five years, respectively, from the grant date (but, in any event, not until the attainment of the certain market value levels described above). The options are not exercisable within six months from the date of grant and expire on the earlier of ten years from the date of grant, upon employment termination, or within specified time limits following voluntary employment termination (with consent of the Company), retirement or death.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
Number of Value of Unexercised Shares Securities Underlying In-the-Money Options Acquired Unexercised Options at Fiscal Year End On Value -------------------------- -------------------------- Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ------------- ---------- ---------- ----------- ------------- ----------- ------------- D.M. Kelly 164,000 $3,238,188 104,334 441,666 $1,641,177 $2,652,071 D.J. DeCarlo 126,000 2,495,500 83,334 315,666 1,276,052 2,768,073 E.J. Boyle None None 13,667 141,333 209,276 819,316 R.J. Schwartz None None 16,000 79,000 225,125 740,561 L.W. Keeley None None None 20,000 None 73,750
ITEM 11. EXECUTIVE COMPENSATION, continued. Retirement Plans: The Company's domestic retirement plan is noncontributory and provides benefits based upon length of service and final average earnings. Generally, employees age 21 with one year of continuous service are eligible to participate in the retirement plan. The benefit formula is 3/4 of 1% of the first $550 of final average monthly earnings plus 1-1/4% of the excess times years of credited service (maximum 35). The plan is a defined benefit plan and covered compensation is limited generally to base salary or wages. Benefits are not subject to any deduction or offset for Social Security. In addition to benefits provided by the Company's retirement plan, the Company has a Supplemental Retirement Plan, which provides for supplemental pension benefits to executive officers of the Company designated by the Board of Directors, including those named in the Summary Compensation Table. Upon normal retirement under this plan, such individuals who meet stipulated age and service requirements are entitled to receive monthly supplemental retirement payments which, when added to their pension under the Company's retirement plan and their maximum anticipated Social Security primary insurance amount, equal, in total, 1.85% of final average monthly earnings (including incentive compensation) times the individual's years of continuous service (subject to a maximum of 35 years). Upon early retirement under this plan, reduced benefits will be provided, depending upon age and years of service. Benefits under this plan do not vest until age 55 and the attainment of 15 years of continuous service. However, in order to recruit Mr. Kelly, the Company waived such minimum service requirement with respect to Mr. Kelly. No benefits will be payable under such supplemental plan following the voluntary employment termination or death of any such individual. The Supplemental Retirement Plan is unfunded; however, a provision has been made on the Company's books for the actuarially computed obligation. The following table shows the total estimated annual retirement benefits payable at normal retirement under the above plans for the individuals named in the Summary Compensation Table at the specified executive remuneration and years of continuous service: Years of Continuous Service Covered ---------------------------------------------------- Remuneration 15 20 25 30 35 - ------------------ -------- -------- -------- -------- -------- $125,000 $ 34,688 $ 46,250 $ 57,813 $ 69,375 $ 80,938 150,000 41,625 55,500 69,375 83,250 97,125 175,000 48,563 64,750 80,938 97,125 113,313 200,000 55,500 74,000 92,500 111,000 129,500 250,000 69,375 92,500 115,625 138,750 161,875 300,000 83,250 111,000 138,750 166,500 194,250 400,000 111,000 148,000 185,000 222,000 259,000 500,000 138,750 185,000 231,250 277,500 323,750 600,000 166,500 222,000 277,500 333,000 388,500 700,000 194,250 259,000 323,750 388,500 453,250 800,000 222,000 296,000 370,000 444,000 518,000 ITEM 11. EXECUTIVE COMPENSATION, continued. The table shows benefits at the normal retirement age of 65, before applicable reductions for social security benefits. The Employee Retirement Income Security Act of 1974 places limitations, which may vary from time to time, on pensions which may be paid under federal income tax qualified plans, and some of the amounts shown on the foregoing table may exceed the applicable limitation. Such limitations are not currently applicable to the Company's Supplemental Retirement Plan. Estimated years of continuous service for each of the individuals named in the Summary Compensation Table, as of October 1, 2000 and rounded to the next higher year, are: Mr. Kelly, 6 years; Mr. DeCarlo, 16 years; Mr. Boyle, 14 years; Mr. Schwartz, 4 years and Mr. Keeley, 1 year. Compensation Committee Interlocks and Insider Participation: Thomas N. Kennedy, a former officer of the Company, was a member of the Company's Compensation Committee until April 2000. Compensation of Directors: Pursuant to the Director Fee Plan, directors who are not also officers of the Company each receive as an annual retainer fee shares of the Company's Class A Common Stock equivalent to approximately $16,000. In addition, each such director is paid $1,000 for every meeting of the Board of Directors attended and (other than a Chairman) $500 for every committee meeting attended. The Chairman of a committee of the Board of Directors is paid $700 for every committee meeting attended. Directors may also elect to receive the common stock equivalent of meeting fees. Each director may elect to be paid these shares on a current basis or have such shares credited to a deferred stock account as phantom stock. No other remuneration is otherwise paid by the Company to any director for services as a director. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. (a)(b) Security Ownership of Certain Beneficial Owners and Management: The Company's Articles of Incorporation divide its voting stock into three classes: Preferred Stock and Class A and Class B Common Stock. At the present time, none of the Preferred Stock is issued or outstanding. The following information is furnished with respect to persons who the Company believes, based on its records, beneficially own more than five percent of the outstanding shares of Class A and Class B Common Stock of the Company, and with respect to directors, officers and executive management. Those individuals with more than five percent of such shares could be deemed to be "control persons" of the Company. This information is as of November 30, 2000. Number of Number of Class A Shares Class B Shares Name of Beneficially Percent Beneficially Percent Beneficial Owner (1) Owned (2) of Class Owned (2) of Class - ---------------- -------------- -------- -------------- -------- Directors, Officers and Executive Management: - -------------------------------------------- D.M. Kelly 224,437 (3) 1.6% 36,000 1.8% E.J. Boyle 57,083 (3) 0.4 18,750 1.0 D.J. DeCarlo 166,667 (3) 1.2 289,910 14.7 R.J. Kavanaugh 1,000 * None - L.W. Keeley 246 (3) * None - T.N. Kennedy 30,000 0.2 None - J.P. O'Leary, Jr. 13,450 0.1 None - R.J. Schwartz 48,059 (3) 0.4 None - W.J. Stallkamp 7,200 * None - J.D. Turner 2,000 * None - All directors, officers and executive management as a group (12 persons) 571,398 (3) 4.1 361,860 18.4 Others: - ------ D. Majestic None - 252,000 12.8 T. Rowe Price Associates, Inc. 100 East Pratt Street Baltimore, MD 21202 1,452,700 10.8 None - Ariel Capital Management, Inc. 307 North Michigan Ave. Chicago, IL 60601 1,072,755 8.0 None - Lord, Abbett & Co. 767 Fifth Avenue New York, NY 10153 885,390 6.6 None - Neuberger Berman, LLC 605 Third Avenue New York, NY 10158 819,431 6.1 None - * Less than 0.1% (1) Unless otherwise noted, the mailing address of each beneficial owner is the same as that of the Registrant. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. (2) The nature of the beneficial ownership for all shares is sole voting and investment power, except as follows: Mr. Stallkamp has sole voting power except for 200 Class A shares held by Mr. Stallkamp as custodian under UTMA for son. Mr. Schwartz has sole voting power except for 40 Class A shares held by Mr. Schwartz as custodian for daughter. Shares held by T. Rowe Price Associates, Inc. ("Price Associates") are owned by various individual and institutional investors, including T. Rowe Price Small-Cap Stock Fund, Inc. which owns 896,000 shares, which Price Associates serves as investment advisor with power to direct investments and/or sole power to vote the shares. For purposes of the reporting requirements of the Securities Exchange Act of 1934, Price Associates is deemed to be a beneficial owner of such shares; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such shares. Price Associates has sole dispositive power for 1,452,700 shares and sole voting power for 387,700 shares. Ariel Capital Management, Inc. has no beneficial interest in any of the 1,072,755 shares owned. Ariel Capital Management, Inc. holds the shares solely for its clients of whom none of them individually owns 5% or more of Matthews International Corporation common stock. Ariel Capital Management, Inc., in its capacity as investment advisor, has sole voting power for 1,013,155 shares and sole investment discretion for 1,072,755 shares. Lord, Abbett & Co. is an investment advisor for various accounts and, as such, disclaims beneficial ownership of shares. Neuberger Berman, LLC ("Neuberger"), as a registered investment advisor, may have discretionary authority to dispose of or vote shares that are under its management. As a result, Neuberger may be deemed to have beneficial ownership of such shares. Neuberger does not, however, have any economic interest in the shares. Its clients are the actual owners of the shares and have the sole right to receive and the power to direct the receipt of dividends from or proceeds from the sale of such shares. Neuberger Berman Inc. is the parent holding company and owns 100% of Neuberger Berman, LLC and Neuberger Berman Management, Inc. Of the shares set forth in the table, Neuberger had shared dispositive power with respect to 819,431 shares, sole voting power with respect to 423,431 shares and shared voting power on 396,000 shares. With regard to the shared voting power, Neuberger Berman Management, Inc. and Neuberger Berman Funds are deemed to be beneficial owners for purpose of Rule 13(d) since they have shared power to make decisions whether to retain or dispose of the shares. Neuberger is the sub-advisor to the above referenced Funds. It should be further noted that the aforementioned shares are also included with the shared power to dispose calculation. (3) Includes options exercisable within 60 days of November 30, 2000 as follows: Mr. Kelly, 181,000 shares; Mr. Boyle, 39,333 shares; Mr. DeCarlo, 166,667 shares; Mr. Schwartz, 36,667 shares; Mr. Keeley, no shares; and all directors and officers as a group, 438,334 shares. (c) Changes in Control: The Company knows of no arrangement which may, at a subsequent date, result in a change in control of the Company. PART IV ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Securities and Exchange Commission requires disclosure of certain business transactions or relationships between the Company, or its subsidiaries, and other organizations with which any of the Company's directors are affiliated as an owner, partner, director, officer or employee. Briefly, disclosure is required where such a business transaction or relationship meets the standards of significance established by the Securities and Exchange Commission with respect to the types and amounts of business transacted. The Company is aware of no transaction requiring disclosure pursuant to this item during the past fiscal year. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Financial Statements: The following items are included in Part II, Item 8: Pages ----- Report of Independent Accountants 28 Consolidated Balance Sheet 29-30 Consolidated Statement of Income 31 Consolidated Statement of Shareholders' Equity 32 Consolidated Statement of Cash Flows 33 Notes to Consolidated Financial Statements 34-52 Supplementary Financial Information 53 2. Financial Statement Schedules: Financial statement schedules have been omitted for the reason that the information is not required or is otherwise given in the consolidated financial statements and notes thereto. 3. Exhibits Filed: The index to exhibits is on pages 67-69. (b) Reports on Form 8-K: None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on December 22, 2000. MATTHEWS INTERNATIONAL CORPORATION ---------------------------------- (Registrant) By David M. Kelly ------------------------------------- David M. Kelly, Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on December 22, 1999: David M. Kelly Edward J. Boyle - ------------------------------------ ------------------------------------ David M. Kelly Edward J. Boyle Chairman of the Board, President Vice President, Accounting & Finance, and Chief Executive Officer Treasurer and Secretary (Principal (Principal Executive Officer) Financial and Accounting Officer) David J. DeCarlo John P. O'Leary, Jr. - ------------------------------------ ------------------------------------ David J. DeCarlo, Director John P. O'Leary, Jr., Director Robert J. Kavanaugh William J. Stallkamp - ------------------------------------ ------------------------------------ Robert J. Kavanaugh, Director William J. Stallkamp, Director Thomas N. Kennedy John D. Turner - ------------------------------------ ------------------------------------ Thomas N. Kennedy, Director John D. Turner, Director MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES EXHIBITS INDEX ---------- The following Exhibits to this report are filed herewith or, if marked with an asterisk (*), are incorporated by reference. Exhibits marked with an "a" represent a management contract or compensatory plan, contract or arrangement required to be filed by Item 601(b)(10)(iii) of Regulation S-K. Exhibit Prior Filing or Sequential No. Description Page Numbers Herein - ------- ----------- -------------------------- 3.1 Restated Articles of Incorporation * Exhibit Number 3.1 to Form 10-K for the year ended September 30, 1994 3.2 Restated By-laws * Exhibit Number 3.1 to Form 8-K dated July 22, 1999 4.1 a Form of Revised Option Agreement Exhibit Number 4.5 to Form of Repurchase (effective 10-K for the year ended October 1, 1993) * September 30, 1993 4.2 Form of Share Certificate for Exhibit Number 4.9 to Form Class A Common Stock * 10-K for the year ended September 30, 1994 4.3 Form of Share Certificate for Exhibit Number 4.10 to Form Class B Common Stock * 10-K for the year ended September 30, 1994 10.1 Revolving Credit and Term Loan Exhibit Number 10.7 to Form Agreement * 10-K for the year ended September 30, 1986 10.2 a Supplemental Retirement Plan * Exhibit Number 10.8 to Form 10-K for the year ended September 30, 1988 10.3 a 1992 Stock Incentive Plan (as Exhibit A to Definitive amended through December 23, 1998) * Proxy Statement filed on January 20, 1999 10.4 a Form of Stock Option Agreement * Exhibit Number 10.1 to Form 10-Q for the quarter ended December 31, 1994 10.5 a 1994 Director Fee Plan (as Exhibit Number 10.7 to Form amended through April 22, 1999) * 10-K for the year ended September 30, 1999 INDEX, Continued ---------- Exhibit Prior Filing or Sequential No. Description Page Numbers Herein - ------- ----------- -------------------------- 10.6 a 1994 Employee Stock Purchase Plan * Exhibit Number 10.2 to Form 10-Q for the quarter ended March 31, 1995 10.7 Asset Purchase Agreement among TKZ Exhibit Number 10.1 to Form Holding Corp., Tukaiz Litho, Inc. 10-Q for the quarter ended and Michael Vitallo * December 31, 1996 10.8 Membership Interest Agreement, Exhibit Number 10.2 to Form Tukaiz Communications L.L.C. * 10-Q for the quarter ended December 31, 1996 10.9 Subordinated Convertible Note from Exhibit Number 10.3 to Form Tukaiz Communications, L.L.C. in favor 10-Q for the quarter ended of Venetian Investment Corporation * December 31, 1996 10.10 Operating Agreement, Tukaiz Exhibit Number 10.4 to Form Communications, L.L.C. * 10-Q for the quarter ended December 31, 1996 10.11 Asset Purchase and Membership Exhibit Number 10.1 to Form Interest Agreement, O.N.E. Color 10-Q for the quarter ended Communications, L.L.C. * June 30, 1998 10.12 O.N.E. Color Communications, L.L.C., Exhibit Number 10.2 to Form Operating Agreement * 10-Q for the quarter ended June 30, 1998 10.13 Stock Purchase Agreement, S+T Exhibit Number 10.17 to Gesellschaft fur Reprotechnik mbH * Form 10-K for the year ended September 30, 1998 10.14 Asset Purchase Agreement, Gibraltar Exhibit Number 10.18 to Mausoleum Construction Company, Inc. * Form 10-K for the year ended September 30, 1998 10.15 Caggiati S.p.A. Asset Purchase Exhibit Number 10.1 to Agreement * Form 10-Q for the quarter ended June 30, 1999 10.16 Loan Agreement, Caggiati S.p.A. * Exhibit Number 10.20 to Form 10-K for the year ended September 30, 1999 10.17 Purchase Agreement among priNexus, Filed Herewith Inc., Matt-One Holding Corporation, Tukaiz Litho, Inc. and Tukaiz Communications, LLC INDEX, Continued ---------- Exhibit Prior Filing or Sequential No. Description Page Numbers Herein - ------- ----------- -------------------------- 21 Subsidiaries of the Registrant Filed Herewith 23 Consent of Independent Accountants Filed Herewith 27 Financial Data Schedule Filed Herewith (via EDGAR) Copies of any Exhibits will be furnished to shareholders upon written request. Requests should be directed to Mr. Edward J. Boyle, Vice President, Accounting & Finance, Treasurer and Secretary of the Registrant.